UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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(X)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended December 26, 2008
OR
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( )
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from __________ to
__________
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Commission
File Number 1-8022
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CSX
CORPORATION
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(Exact name of registrant as
specified in its charter)
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Virginia
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62-1051971
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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500
Water Street, 15th Floor, Jacksonville, FL
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32202
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(904)
359-3200
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(Address
of principal executive offices)
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(Zip
Code)
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(Telephone
number, including area code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of exchange on which registered
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Common
Stock, $1 Par Value
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New
York Stock Exchange
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Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark if the
registrant is a well-known seasoned issuer (as defined in Rule 405 of the
Securities Act).
Yes (X)
No ( )
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.
Yes
( ) No (X)
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 if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. (
)
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer or a
non-accelerated filer (as defined in Exchange Act Rule 12b-2).
Large
Accelerated Filer
(X) Accelerated
Filer
( ) Non-accelerated
Filer ( )
Indicate by check mark whether the
registrant is a shell company (as defined in Exchange Act Rule
12b-2).
Yes
( ) No (X)
On June 27, 2008 (which is the last day
of the second quarter and the required date to use), the aggregate market value
of the Registrant’s voting stock held by non-affiliates was approximately $25.2
billion (based on the New York Stock Exchange closing price on such
date).
There were 399,254,173 shares of Common
Stock outstanding on January 30, 2009 (the latest practicable date that is
closest to the filing date).
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive
Proxy Statement (the “Proxy Statement”) to be filed no later than 120 days after
the end of the fiscal year with respect to its annual meeting of shareholders
scheduled to be held on May 6, 2009.
1
Item 1. Business by Segment
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.
Rail
CSX’s
principal operating company, CSX Transportation, Inc. (“CSXT”), provides a
crucial link to the transportation supply chain through its approximately 21,000
route mile rail network, which serves major population centers in 23 states east
of the Mississippi River, the District of Columbia, and the Canadian provinces
of Ontario and Quebec. It serves 70 ocean, river and lake ports along
the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St.
Lawrence Seaway. CSXT also serves thousands of production and
distribution facilities through track connections to more than 230 short-line
and regional railroads.
Other
Entities
In
addition to CSXT, the rail segment includes 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.
Intermodal
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. Containers and trailers are loaded and unloaded from
trains, and trucks provide the link between intermodal terminals and the
customer.
Lines
of Business
Together,
the rail and intermodal segments generated $11.3 billion of revenue during 2008
and served four primary lines of business:
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·
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The
merchandise business is the most diverse market with nearly 2.5 million
carloads per year of aggregates, which include crushed stone, sand and
gravel, metal, phosphate, fertilizer, food, consumer, agricultural, paper
and chemical products. The merchandise business generated
approximately 49% of the Company’s revenue in 2008 and 37% of
volume.
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·
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Coal,
which delivered approximately 1.9 million carloads of coal, coke and iron
ore to electricity generating power plants, ocean, river and lake piers
and terminals, steel makers and industrial plants, accounted for
approximately 29% of the Company’s revenue in 2008 and 28% of
volume. The Company transports almost one-third of every ton of coal
used for generating electricity in the areas it
serves.
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·
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Automotive,
which delivers finished vehicles and auto parts, generated approximately
7% of the Company’s revenue and 5% of the Company’s volume in
2008. The Company delivers approximately 30% of North America’s
light vehicles, serving both traditional manufacturers and the increasing
number of global
manufacturers.
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·
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Intermodal
offers a competitive cost advantage over long-haul trucking by combining
the economics of rail transportation with the short-haul flexibility of
trucks. Through its network of more than 50 terminals, Intermodal
serves all major markets east of the Mississippi River and transports
mainly manufactured consumer goods in containers, providing customers with
truck-like service for longer shipments. For 2008, Intermodal
accounted for approximately 13% of the Company’s total revenue and 30% of
volume.
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Other revenue, which includes revenue
from regional railroads, demurrage, switching and other incidental charges,
accounted for 2% of the Company’s total 2008 revenue. Revenue from
regional railroads includes shipments by railroads that the Company does not
directly operate. Demurrage represents charges assessed by railroads
when shippers or receivers of freight hold railcars beyond a specified period of
time. Switching revenue is generated when CSXT switches cars between
trains for a customer or another railroad.
Other
Businesses
CSX’s
other holdings include CSX Real Property, Inc., a subsidiary responsible for the
Company’s real estate sales, leasing, acquisition and management and development
activities, and the Greenbrier Hotel Corporation, formerly known as CSX Hotels,
Inc., a resort doing business as The Greenbrier. These items are
classified in other income because they are not considered by the Company to be
operating activities and results may fluctuate with the timing of real estate
sales and resort seasonality. See Note 9, Other Income, for more
information related to the Company’s investment in The Greenbrier
resort.
Financial
Information about Operating Segments
See Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations for operating revenue, operating income and total assets by segment
for each of the last three fiscal years.
Company
History
A leader
in freight rail transportation for more than 180 years, the Company’s roots date
back to the early nineteenth century when The Baltimore and Ohio Railroad
Company (“B&O”) – the nation’s first common carrier – was chartered in 1827.
Since that time, the Company has built on the foundation laid by early pioneers
who had a vision to create a railroad that could safely and reliably service the
ever-increasing demands of a growing nation.
Since its founding, numerous railroads
have combined with the former B&O through merger and consolidation to create
what has become CSX. Each of the railroads that combined into the CSX
family brought unique and valuable geographical reach to new markets, gateways,
cities, ports and transportation corridors.
CSX was
incorporated in 1978 under Virginia law. In 1980, the Company completed the
merger of the Chessie System (“Chessie”) and Seaboard Coast Line Industries
(“Seaboard”) into CSX. The merger allowed the Company to connect
northern population centers and Appalachian coal fields to growing southeastern
markets. In 1986, the Chessie and Seaboard operating entities were transferred
to the rail entity CSXT, which was created through the
merger. Intermodal was originally formed in 1986 in order to provide
nationwide, door-to-door intermodal service.
In 1997,
CSXT and Norfolk Southern Railway jointly acquired the rights to operate
Conrail, Inc. (“Conrail”) and then in 2004, CSXT acquired an allocated portion
of Conrail’s assets, which CSXT operated. Conrail was formed in 1976
from several financially troubled northeast railroads to restructure and revive
the region’s railroads. The Company’s acquisition of key portions of
Conrail allows CSXT to link the northeast, including New England and the New
York metropolitan area, with Chicago, midwest markets and the growing areas in
the southeast that were already served by CSXT. This current rail
network allows the Company to directly serve every major market in the eastern
United States with dependable, environmentally friendly and fuel efficient
freight transportation and intermodal service.
Regulatory
Environment
The
Company's operations are subject to a variety of federal, state and local laws
and regulations, generally applicable to many businesses in the United
States. The railroad operations conducted by the Company's subsidiaries,
including CSXT, are subject in many respects to the regulatory jurisdiction of
the Surface Transportation Board (“STB”), the Federal Railroad Administration
(“FRA”), and its sister agency within the U.S. Department of Transportation
(“DOT”), the Pipeline and Hazardous Materials Safety Administration
(“PHMSA”). Together, FRA and PHMSA have broad jurisdiction over
railroad operating standards and practices, including track, freight cars and
locomotives, and hazardous materials requirements. Additionally, the
Transportation Security Administration (“TSA”), a component of the Department of
Homeland Security (“DHS”), has broad authority over railroad operating practices
that may include homeland security implications. In some cases, state
and local laws and regulations can be preempted in their application to
railroads by the operation of these and other federal authorities.
Decisions
of these and other agencies can affect the profitability of the Company’s
business. For further discussion on regulatory risks to the Company,
see Item 1A. Risk Factors beginning on page 8.
Although
the Staggers Act of 1980 significantly deregulated rail rates and much of the
rail traffic of the Company's subsidiaries is currently exempt from rate
regulation by agency decision, the STB has broad jurisdiction over railroad
commercial practices, including some railroad rates. This includes
jurisdiction over freight car charges, the transfer, extension or abandonment of
rail lines, rates charged on certain regulated rail traffic and any acquisition
of control over rail common carriers. In 2008, for example, the STB
issued a decision modifying its policies governing certain contractual terms
sometimes used in sales of rail lines. See Note 6, Commitments and
Contingencies for further information.
In 2008,
Congress enacted the Rail Safety Improvement Act. The legislation
includes a mandate that all Class I freight railroads implement a positive train
control system (“PTC”) by December 31, 2015. PTC must be installed on
all main lines with passenger and computer operations as well as those over
which toxic-by-inhalation hazardous materials (“TIH”) are
transported. Implementation of a PTC system is designed to prevent
train-to-train collisions, over-speed derailments, incursions into established
work-zone limits, and a train from diverting off-course onto another set of
tracks through a switch left in a wrong position. Significant capital
costs are anticipated with the implementation of PTC as well as ongoing
operating expenses.
Also
in 2008, the TSA issued rules that apply to the transportation of certain kinds
of highly hazardous materials. The new rules place significant new
security and safety requirements on passenger and freight railroad carriers,
rail transit systems, and facilities that ship hazardous materials by
rail.
Competition
The business environment in which the
Company operates is highly competitive. Shippers typically select
transportation providers that offer the most compelling combination of service
and price. Service requirements, both in terms of transit time and
reliability, vary by shipper and commodity. As a result, the Company’s primary
competition varies by commodity, geographic location and mode of available
transportation.
CSXT’s
primary rail competitor is Norfolk Southern Railway, which operates throughout
much of CSX’s territory. Other railroads also operate in parts of
CSXT’s territory. Depending on the specific market,
competing railroads and deregulated motor carriers may exert pressure on price
and service levels. For further discussion on the risk of competition
to the Company, see Item 1A. Risk Factors beginning on page 8.
Other
Information
CSX makes available on its website
www.csx.com,
free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports as soon as
reasonably practicable after such reports are filed with or furnished to the
Securities and Exchange Commission (“SEC”). Additionally, the Company has posted
its code of ethics on its website, which is also available to any shareholder
who requests it. This Form 10-K and other SEC filings made by CSX are
also accessible through the SEC’s website at www.sec.gov.
CSX has included the certifications of
its Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”)
regarding the Company’s public disclosure required by Section 302 of the
Sarbanes-Oxley Act of 2002 (“the Act”) as Exhibit 31, as well as Section 906 of
the Act as Exhibit 32 to this Form 10-K report. Additionally, on October 23,
2008, CSX filed its annual CEO certification with the New York Stock Exchange
(“NYSE”) confirming CSX’s compliance with the NYSE Corporate Governance Listing
Standards. The CEO was not aware of any violations of these standards
by CSX as of January 30, 2009 (the latest practicable date that is closest to
the filing of this Form 10-K). This certification is also included as
Exhibit 99 to this Form 10-K.
The
Company’s annual average number of employees was approximately 34,000 in 2008,
which includes approximately 29,000 union employees. Most of the
Company’s employees provide or support transportation services. The
information set forth in Item 6. Selected Financial Data is incorporated herein
by reference.
For
additional information concerning business conducted by the Company during 2008,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations and Item 8. Financial Statements and Supplementary Data -
Note 17 Business Segments.
Item 1A. Risk Factors
The
following risk factors could have a materially adverse effect on the Company’s
financial condition, results of operations or liquidity, and could cause those
results to differ materially from those expressed or implied in the Company’s
forward-looking statements. Although the risks described below are
those that management believes are the most significant, these are not the only
risks facing the Company. Additional risks and uncertainties not
currently known to the Company or that the Company currently does not deem to be
material also may materially impact the Company’s financial condition, results
of operations or liquidity.
New
legislation or regulatory changes could impact the Company’s earnings or
restrict its ability to independently negotiate prices.
Political
changes could result in legislative or regulatory changes that impose new
burdens on the Company, increase operating costs, reduce operating efficiency or
limit revenues. Legislation passed by Congress or new regulations
issued by federal agencies can significantly affect the revenues, costs and
profitability of the Company’s business. The railroad industry is
vulnerable to economic re-regulation by Congress, which could have a significant
negative impact on the Company’s ability to determine prices for rail services
and would likely force a reduction in capital spending. For example,
statutes imposing price or labor constraints or affecting rail-to-rail
competition could adversely affect the Company’s profitability. Also,
additional regulations related to environmental matters such as greenhouse gas
emissions could increase the Company’s operating costs or reduce operating
efficiencies or impact the business of CSX customers.
Government
regulation and compliance risks may affect the Company’s operations and
financial results.
The
Company is subject to the jurisdiction of various regulatory agencies, including
the STB, the FRA and other state and federal regulatory agencies for a variety
of economic, health, safety, labor, environmental, tax, legal and other
matters. The FRA regulates several of the Company’s core operations
including track and mechanical equipment standards, signaling systems,
inspection of grade crossing warning devices, locomotive engineer certifications
and employee injury reporting, among other areas.
In
addition, the DOT and DHS have crafted rules requiring new safety measures and
security protocols. These regulations will increase operational costs
and affect freight transportation routes. Legislation recently
enacted by Congress will also increase compliance risks. The Rail
Safety Improvement Act of 2008 imposes limits on employee work hours and may
result in higher operating costs for the Company.
Noncompliance
with applicable laws or regulations could erode public confidence in the Company
and can subject the Company to fines, penalties and other legal or regulatory
sanctions. In addition, a change in these regulations could increase
operating costs and reduce operating efficiency.
General
economic conditions could negatively impact demand for commodities and other
freight.
The
current economic environment has impacted demand for rail and intermodal
services. Further decline in general domestic and global economic
conditions that affect demand for the commodities that the Company carries or
that lead to bankruptcies or liquidations of one or more large customers of the
Company could reduce the Company’s revenues, increase its bad debt expense,
reduce its ability to make capital expenditures or have other adverse
effects. Because certain of the Company’s customers are in the
automotive, housing and other industries, continued weakness or further
downturns in these sectors could adversely affect the Company’s operating
results.
Weaknesses
in the capital and credit markets could negatively impact the Company’s access
to capital.
The
Company is in a capital intensive industry that requires continuing
infrastructure improvements and acquisition of capital assets. The
Company from time to time accesses the credit markets for additional
liquidity. Credit markets have recently experienced adverse
conditions, increasing the costs associated with issuing debt. These
conditions may further increase the Company’s funding costs, limit the Company’s
ability to sell debt securities on acceptable terms and impede the Company’s
attempts to revise its current debt arrangements as contemplated.
CSXT,
as a common carrier by rail, is required by law to transport hazardous
materials, which could expose the Company to significant costs and
claims.
Under federal regulations, CSXT is
required to transport hazardous materials under its common carrier
obligation. A train accident involving the transport of hazardous
materials could result in significant claims arising from personal injury,
property damage, and environmental penalties and remediation. Such
claims could exceed existing insurance coverage or insurance may not continue to
be available at commercially reasonable rates. CSXT is also required
to comply with regulations regarding the handling of hazardous
materials.
In
November 2008, the TSA issued final rules placing significant new security and
safety requirements on passenger and freight railroad carriers, rail transit
systems, and facilities that ship hazardous materials by
rail. Noncompliance with these rules can subject the Company to
significant penalties and could be a factor in litigation arising out of a train
accident. Finally, legislation preventing the transport of hazardous
materials through certain cities could result in network congestion and increase
the length of haul for hazardous substances, which could result in increased
operating costs, reduced operating efficiency or increase the risk of an
accident involving the transport of hazardous materials.
Future
acts of terrorism, war or regulatory changes to combat the risk of terrorism may
cause significant disruptions in the Company’s operations.
Terrorist
attacks, along with any government response to those attacks, may adversely
affect the Company’s financial condition, results of operations or
liquidity. CSXT’s rail lines or other key infrastructure may be
direct targets or indirect casualties of acts of terror or war. This
risk could cause significant business interruption and result in increased costs
and liabilities and decreased revenues. In addition, premiums charged
for some or all of the insurance coverage currently maintained by the Company
could increase dramatically or the coverage may no longer be
available.
Furthermore,
in response to the heightened risk of terrorism, federal, state and local
governmental bodies are proposing and, in some cases, have adopted various
legislation and regulations relating to security issues that impact the
transportation industry. For example, the DHS adopted regulations
that require freight railroads to implement additional security protocols when
transporting hazardous materials. Complying with these regulations
could continue to increase the Company’s operating costs and reduce operating
efficiencies.
The
Company is subject to environmental laws and regulations that may result in
significant costs.
The Company’s operations are subject to
wide-ranging federal, state and local environmental laws and regulations
concerning, among other things, emissions into the air, discharges
into water, the handling, storage, transportation and disposal of waste and
other materials and clean-up of hazardous material or petroleum
releases. In certain circumstances, environmental liability can
extend to formerly owned or operated properties, leased properties, adjacent
properties and properties owned by third parties or Company predecessors, as
well as to properties currently owned and used by the Company.
The
Company has been, and may be subject to, allegations or findings to the effect
that it has violated, or is strictly liable under, environmental laws or
regulations, and such violations can result in the Company’s incurring fines,
penalties or costs relating to the clean-up of environmental contamination. Although the Company
believes it has appropriately recorded current and long-term liabilities for
known future environmental costs, it could incur significant costs that exceed
reserves or require unanticipated cash expenditures as a result of any of the
foregoing and may be required to incur significant expenses to investigate and
remediate known, unknown or future environmental contamination.
Severe
weather or other natural occurrences could result in significant business
interruptions and expenditures in excess of available insurance
coverage.
The
Company’s operations may be affected by external factors such as severe weather
and other natural occurrences, including floods, fires, hurricanes and
earthquakes. Insurance maintained by the Company to protect against
loss of business and other related consequences resulting from these natural
occurrences is subject to limitations on coverage, depending on the nature of
the risk insured against. This insurance may not be sufficient to cover all of
the Company’s damages or damages to others and this insurance may not continue
to be available at commercially reasonable rates. Even with insurance, if any
natural occurrence leads to a catastrophic interruption of service, the Company
may not be able to restore service without a significant interruption in
operations.
The
Company may be subject to various claims and lawsuits that could result in
significant expenditures.
The
Company is subject to various existing lawsuits, including putative class action
litigation alleging violations of antitrust laws and potential unknown
litigation. The Company may experience material judgments or incur
significant costs to defend any such lawsuits. Additionally, existing
litigation may suffer adverse developments not currently reflected in the
Company’s reserve estimates as the ultimate outcome of existing litigation is
subject to numerous factors outside of the Company’s control. While
the Company uses its best efforts to evaluate existing litigation, the final
judgments or settlement amounts may differ materially from the recorded
reserves.
Increases
in the number and magnitude of property damage and personal injury claims could
adversely affect the Company’s operating results.
The Company faces inherent business
risk from exposure to property damage, occupational injury claims, and personal
injury claims resulting from train accidents, worker injury claims under the
Federal Employers’ Liability Act (“FELA”) and claims from outside parties
resulting from the Company’s operations. The Company could experience
material property damage, personal injury or occupational claims in the future
and it may incur significant costs to defend such claims.
Existing claims may suffer adverse
developments not currently reflected in reserve estimates, as the ultimate
outcome of existing claims is subject to numerous factors outside of the
Company’s control. Although the Company establishes reserves and maintains
insurance to cover these types of claims, final amounts determined to be due on
any outstanding matters may differ materially from the recorded reserves and
exceed the Company’s insurance coverage.
Failure
to complete negotiations on collective bargaining agreements could result in
strikes and/or work stoppages.
Most of CSXT's employees are
represented by labor unions and are covered by collective bargaining agreements.
Generally speaking, these agreements are bargained nationally by the National
Carriers Committee. In the rail industry, negotiations have generally
taken place over a number of years and previously have not resulted in any
extended work stoppages. Over the last 30 years, there were only six
days of work stoppage related to labor disputes over national
handling. If the Company is unable to negotiate acceptable
agreements, it could result in strikes by the affected workers, loss of business
and increased operating costs as a result of higher wages or benefits paid to
union members. Under the Railway Labor Act’s procedures (which
include mediation, cooling-off periods and the possibility of Presidential
intervention), neither party may take action until the procedures are
exhausted.
The
Company faces competition from other transportation providers.
The
Company experiences competition in the form of pricing, service, reliability and
other factors from other transportation providers including railroads and motor
carriers that operate similar routes across its service area and, to a less
significant extent, barges, ships and pipelines. Transportation providers such
as motor carriers and barges utilize public rights-of-way that are built and
maintained by governmental entities while CSXT and other railroads must build
and maintain rail networks using largely internal resources. Any future
improvements or expenditures materially increasing the quality or reducing the
cost of alternative modes of transportation, or legislation providing for less
stringent size or weight restrictions on trucks, could negatively impact the
Company’s competitive position.
Network
congestion could have a negative impact on service and operating
efficiency.
The
Company may experience rail network difficulties related to network capacity,
unplanned increases in demand for rail service, increased passenger activities
in capacity-constrained areas or regulatory changes impacting when CSXT can
transport freight or service routes that could have a negative effect on the
Company’s operational fluidity, leading to deterioration of service, asset
utilization and overall efficiency.
The
Company relies on the stability and availability of its technology systems to
operate its business.
The
Company relies on information technology in all aspects of its
business. A significant disruption or failure of the Company’s
information technology systems, including computer hardware, software and
communications equipment, could result in a service interruption, safety
failure, security breach or other operational difficulties. While the
Company has taken steps to mitigate these risks, the performance and reliability
of its technology systems are critical to its ability to operate and compete
effectively.
Disruption
of the supply chain could negatively impact operating efficiency and increase
costs.
The
capital intensive nature and sophistication of core rail equipment (including
rolling stock equipment, locomotives, rail, and ties) limits the number of
railroad equipment suppliers. If any of the current manufacturers
stops production or experiences a supply shortage, the Company could experience
a significant cost increase or material shortage. In addition, a few
critical railroad suppliers are foreign. Adverse developments in
international relations, new trade regulations, disruptions in international
shipping, or increases in global demand could make procurement of these supplies
more difficult or increase the Company’s operating costs.
Additionally,
if a fuel supply shortage were to arise, whether due to the Organization of the
Petroleum Exporting Countries or other production restrictions, lower refinery
outputs, a disruption of oil imports or otherwise, the Company would be
negatively impacted.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties by Segment
Rail
Property
CSXT’s properties primarily consist of
track and its related infrastructure, locomotives and freight
cars. These categories and the geography of the network are described
below.
Track
and Infrastructure
Serving
23 states, the District of Columbia, and the Canadian provinces of Ontario and
Quebec, the CSXT rail network serves, among other markets, New York,
Philadelphia and Boston in the northeast and mid-Atlantic, the southeast markets
of Atlanta, Miami and New Orleans, and the midwestern cities of St. Louis,
Memphis and Chicago.
CSXT’s
track structure includes main thoroughfares connecting terminals and yards
(known as mainline track), track within terminals and switching yards, track
adjacent to the mainlines used for passing trains, track connecting the mainline
track to customer locations and track that diverts trains from one track to
another known as turnouts. Total track miles are greater than the
Company’s approximately 21,000 route miles, which reflect the size of CSXT’s
rail network that connects markets, customers and western
railroads. At December 2008, the breakdown of track miles was as
follows:
|
Track
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|
|
Miles
|
|
|
Mainline
track
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26,753
|
|
Terminals
and switching yards
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9,602
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Passing
sidings and turnouts
|
969
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Total
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37,324
|
In
addition to its physical track structure, CSXT operates numerous yards and
terminals. These serve as the hubs between CSXT and its local customers
and as sorting facilities where rail cars often are received, re-sorted and
placed onto new outbound trains.
The
following 36 yards are identified as key to the CSXT system (listed in
alphabetical order by state):
|
Rail
Yards or Terminals
|
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Birmingham,
AL
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Detroit,
MI
|
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Mobile,
AL
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Hamlet,
NC
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Montgomery,
AL
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Rocky
Mount, NC
|
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Baldwin,
FL
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Buffalo,
NY
|
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Moncrief
(Jacksonville), FL
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Selkirk,
NY
|
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Tampa,
FL
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Syracuse,
NY
|
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Atlanta,
GA
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Cincinnati,
OH
|
|
East
Savannah, GA
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Cleveland,
OH
|
|
Waycross,
GA
|
Columbus,
OH
|
|
Avon
(Indianapolis), IN
|
Stanley
(Toledo), OH
|
|
Chicago,
IL
|
Walbridge
(Toledo), OH
|
|
Evansville,
IN
|
Willard,
OH
|
|
Louisville,
KY
|
Greenwich
(Philadelphia), PA
|
|
Russell,
KY
|
Charleston,
SC
|
|
New
Orleans, LA
|
Florence,
SC
|
|
Cumberland,
MD
|
Erwin,
TN
|
|
Curtis
Bay (Baltimore), MD
|
Nashville,
TN
|
|
Locust
Point (Baltimore), MD
|
Richmond,
VA
|
For a
list of Intermodal’s terminals, see page 18.
Network
Geography
CSXT’s
rail operations are primarily focused on four major transportation networks and
corridors which are defined geographically and by commodity flows
below.
Coal Network –
The CSXT coal network connects the coal mining operations in nine eastern states
with industrial areas in the northeast and mid-Atlantic, as well as many river,
lake, and deep water port facilities. Coal is used to generate more
than half of the electricity in the United States. CSXT’s coal network is well
positioned to supply utility markets in both the northeast and
southeast.
Southeastern Corridor
– This critical part of the network runs between CSXT’s western gateways of
Chicago, St. Louis and Memphis through the cities of Nashville, Birmingham, and
Atlanta and markets in the southeast. The corridor provides direct
rail service between the coal reserves of the southern Illinois basin and the
increasing demand for coal in the southeast. The Southeastern Corridor is the
premier rail route connecting these key cities, gateways, and markets
and positions CSXT well to efficiently handle projected traffic volumes of
intermodal, coal, automotive and general merchandise traffic.
Interstate 90 (I-90)
Corridor – This CSXT corridor links Chicago and metropolitan areas in New
York and New England. This route, also known as the “waterlevel
route”, has minimal hills and grades and nearly all of it has two main tracks
(referred to as double track). These superior engineering attributes
permit the corridor to support consistent, high-speed intermodal, automotive and
merchandise service. This corridor is a primary route for import
traffic moving eastward across the country, through Chicago and into the
population centers in the northeast. The I-90 Corridor is also a
critical link between ports in New York, New Jersey, and Pennsylvania and
consumption markets in the midwest.
Interstate 95 (I-95)
Corridor – The CSXT I-95 Corridor connects Charleston, Jacksonville,
Miami and many other cities throughout the southeast with the heavily populated
northeastern cities of Baltimore, Philadelphia, and New York. CSXT
primarily transports food and consumer products, as well as metals and chemicals
along this line. It is the only rail corridor along the eastern
seaboard south of Washington, D.C., and provides access to all the major eastern
ports.
Locomotives
CSXT focuses on maximum use of its
fleet and prudent investment in new units to drive the rail
network. Better locomotive management can help CSXT move freight more
efficiently, while continued investment in CSXT’s power source can enable CSXT
to operate more locomotives better.
CSXT
operates more than 4,000 locomotives, of which over 95% are owned by
CSXT. Freight locomotives are the power source used primarily to pull
rail cars. Switching locomotives are used in yards to sort railcars
so that the right railcar gets attached to the right train in order to get it to
its final destination. Auxiliary units are typically used to provide
extra traction for heavy trains in hilly terrain. At December 2008,
CSXT’s fleet of owned and long-term leased locomotives consisted of the
following types of locomotives:
|
Locomotives
|
%
|
||
|
Freight
|
3,600
|
87%
|
|
|
Switching
|
322
|
8%
|
|
|
Auxiliary
Units
|
221
|
5%
|
|
|
Total
|
4,143
|
100%
|
|
The table
below indicates the number and year built for locomotives owned or on long-term
lease at December 2008.
|
Year
Built
|
Locomotives
|
%
|
||
|
1989
and before
|
2,021
|
50%
|
||
|
1990
- 1994
|
541
|
13%
|
||
|
1995
- 1999
|
601
|
15%
|
||
|
2000
- 2004
|
380
|
9%
|
||
|
2005
|
100
|
2%
|
||
|
2006
|
100
|
2%
|
||
|
2007
|
184
|
4%
|
||
|
2008
|
216
|
5%
|
||
|
Total
|
4,143
|
100%
|
Freight
Car Fleet
The
average daily fleet of cars-on-line consists of approximately 224,000 cars, but
at any point in time, over half of the railcars on the CSXT system are not owned
or leased by CSXT. Examples of these are: railcars owned by other
railroads (which are utilized by CSXT), shipper-furnished or private cars (which
are generally used only in that shipper’s service) and multi-level
railcars.
CSXT’s
freight car fleet consists of six main types of cars:
Gondolas – Support
CSXT’s metals markets and provide transport for woodchips and other bulk
commodities. Some gondolas are equipped with special hoods for
protecting products like coil and sheet steel.
Open-top hoppers –
Transport heavy dry bulk commodities such as coal, coke, stone, sand, ores and
gravel that are resistant to weather conditions.
Box cars – Include a
variety of tonnages, sizes, door configurations and heights to accommodate a
wide range of finished products, including paper, auto parts, appliances and
building materials. Insulated box cars deliver food products, canned
goods, beer and wine.
Covered hoppers –
Have a permanent roof and are segregated based upon commodity
density. Lighter bulk commodities such as grain, fertilizer, flour,
salt, sugar, clay and lime are shipped in large cars called jumbo covered
hoppers. Heavier commodities like cement, ground limestone and glass
sand are shipped in small cube covered hoppers.
Multi-level flat cars
– Transport finished automobiles and are differentiated by the number of levels:
bi-levels for large vehicles such as pickup trucks and SUVs and tri-levels for
sedans and smaller automobiles.
Flat cars – Used for
shipping intermodal containers and trailers or bulk and finished goods, such as
lumber, pipe, plywood, drywall and pulpwood.
Other
cars owned or leased on the network include, but are not limited to, center beam
cars for transporting lumber and building products.
CSXT owns
more than 60% of its freight cars. At December 2008, CSXT’s owned and
long-term leased freight car fleet consisted of the following:
|
Freight
Cars
|
%
|
||
|
Gondolas
|
26,377
|
29%
|
|
|
Open-top
hoppers
|
18,760
|
21%
|
|
|
Box
cars
|
13,198
|
14%
|
|
|
Covered
hoppers
|
12,915
|
14%
|
|
|
Multi-level
flat cars
|
11,772
|
13%
|
|
|
Flat
cars
|
7,195
|
8%
|
|
|
Other
cars
|
1,133
|
1%
|
|
|
Total
|
91,350
|
100%
|
|
Intermodal
Property
Infrastructure
Intermodal serves 56 terminals in 22
states. These terminals serve as a transfer point between rail and trucks. If
the city or state has more than one terminal, it is indicated by the number next
to it (listed in alphabetical order by state).
|
Intermodal
Terminals
|
|
|
Mobile,
AL
|
Kansas
City, MO
|
|
Lathrop,
CA
|
Charlotte,
NC
|
|
Los
Angeles/Long Beach, CA (3)
|
Buffalo,
NY
|
|
Oakland,
CA
|
Syracuse,
NY
|
|
Jacksonville,
FL (2)
|
New
York/New Jersey (6)
|
|
Miami,
FL
|
Cincinnati,
OH
|
|
Orlando,
FL
|
Cleveland,
OH
|
|
Tampa,
FL
|
Columbus,
OH (2)
|
|
Atlanta,
GA (2)
|
Marion,
OH
|
|
Savannah,
GA (2)
|
Portland,
OR
|
|
Chicago,
IL (3)
|
Chambersburg,
PA
|
|
East
St. Louis, IL (2)
|
Philadelphia,
PA
|
|
Indianapolis,
IN
|
Charleston,
SC
|
|
Evansville,
IN
|
Memphis,
TN (2)
|
|
New
Orleans, LA
|
Nashville,
TN
|
|
Boston,
MA
|
Houston,
TX
|
|
Springfield,
MA
|
Dallas,
TX
|
|
Worcester,
MA (3)
|
Portsmouth,
VA
|
|
Baltimore,
MD
|
Seattle,
WA
|
|
Detroit,
MI
|
|
Equipment
Intermodal
equipment consists primarily of containers, chassis and other equipment (such as
lift equipment). Containers are weather-proof boxes used for bulk
shipment of freight, and chassis are the wheeled support framework for a
container that allows it to be attached to a tractor. All of
Intermodal’s chassis are leased. Intermodal also has other types of
equipment such as doublestack railcars, which are railcars that allow for two
containers to be mounted one above the other.
At December 2008, Intermodal owned or
long-term leased equipment consisted of the following:
|
Equipment
|
%
|
||
|
Containers
|
14,577
|
52%
|
|
|
Chassis
|
13,060
|
47%
|
|
|
Other
|
426
|
2%
|
|
|
Total
|
28,063
|
100%
|
Item 3. Legal Proceedings
The Company is subject to various legal
proceedings and claims that arise in the ordinary course of
business. For more information on legal proceedings, see Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations under the caption “Critical Accounting Estimates – Casualty,
Environmental and Legal Reserves” and Item 8. Financial Statements and
Supplementary Data - Note 6 Commitments and Contingencies under the caption
“Other Legal Proceedings.”
Item 4. Submission of Matters to a Vote of
Security Holders
There were no matters submitted to a
vote of security holders in the fourth quarter of 2008.
Executive
Officers of the Registrant
Executive officers of the Company are
elected by the CSX Board of Directors and generally hold office until the next
annual election of officers. There are no family relationships or any
arrangement or understanding between any officer and any other person pursuant
to which such officer was elected. As of the date of this filing, the
executive officers are:
|
Name and Age
|
Business Experience During Past 5
Years
|
|
Michael
J. Ward, 58
Chairman,
President and Chief Executive Officer
|
A
31-year veteran of the Company, Ward has served as Chairman, President and
Chief Executive Officer of CSX since January 2003. In 2000, he
was named President of CSXT, and he was later appointed President of CSX
and elected to the Board of Directors in 2002.
His
distinguished railroad career has included key executive positions in
nearly all aspects of the Company’s business, including sales and
marketing, operations and finance.
|
|
Oscar
Munoz, 49
Executive
Vice President and Chief Financial Officer
|
Munoz
has served as Executive Vice President and Chief Financial Officer of CSX
and CSXT since May 2003 and is responsible for management and oversight of
all financial, strategic planning, information technology, purchasing and
real estate activities of CSX.
He
brings to the Company years of experience from a variety of
industries. Before joining CSX in 2003, Munoz served as Chief
Financial Officer and Vice President of AT&T Consumer
Services. He has also held key executive positions within the
telecommunication and beverage industries, including the Coca-Cola Company
and Pepsico Corporation.
|
|
Name and Age
|
Business Experience During Past 5
Years
|
|
Tony
L. Ingram, 62
Executive
Vice President and Chief Operating Officer
|
Ingram
has served as Executive Vice President and Chief Operating Officer of CSXT
since March 2004 and manages all aspects of the Company’s operations
across its 21,000 mile network, including transportation, service design,
customer service, engineering and mechanical.
Prior
to joining CSXT in 2004, Ingram spent more than 30 years at Norfolk
Southern where he served as Senior Vice President – Transportation,
Network and Mechanical from February 2003 to March 2004 and Vice
President, Transportation – Operations from March 2000 to February
2003.
|
|
Clarence
W. Gooden, 57
Executive
Vice President of Sales and Marketing and Chief Commercial
Officer
|
Gooden
has been the Executive Vice President and Chief Commercial Officer of CSX
and CSXT since April 2004 and is responsible for generating customer
revenue, forecasting business trends and developing CSX’s model for future
revenue growth.
A
member of the Company for more than 35 years, Gooden has held key
executive positions in both operations and sales and marketing, including
being appointed President of CSX Intermodal in 2001 and Senior Vice
President of the Merchandise Service Group in 2002.
|
|
Ellen
M. Fitzsimmons, 48
Senior
Vice President of Law and Public Affairs, General Counsel and Corporate
Secretary
|
Fitzsimmons
has been the Senior Vice President of Law and Public Affairs, General
Counsel, and Corporate Secretary since December 2003. She
serves as the Company’s chief legal officer and oversees all government
relations and public affairs activities.
During
her 17-year tenure with the Company, her broad responsibilities have
included key roles in major risk and corporate governance-related
areas.
|
|
Name and Age
|
Business Experience During Past 5
Years
|
|
Lisa
A. Mancini, 49
Senior
Vice President of Human Resources and Labor Relations
|
Mancini
assumed the role of Senior Vice President of Human Resources and Labor
Relations in January 2009 and is responsible for employee compensation and
benefits, labor relations, organizational development and transformation,
recruitment, training and various administrative
activities. She previously served as Vice President-Strategic
Infrastructure Initiatives from 2007 to 2009 and, prior to that, Vice
President – Labor Relations.
Prior
to joining CSX in 2003, Mancini served as Chief Operating Officer of the
San Francisco Municipal Railway and held executive positions at the San
Francisco Municipal Transportation Authority and Southeastern Pennsylvania
Transportation Authority.
|
|
Carolyn
T. Sizemore, 45
Vice
President and Controller
|
Sizemore
has served as Vice President and Controller of CSX and CSXT since April
2002 and is responsible for financial and regulatory reporting, paying the
Company’s 34,000 employees, accounts payable and billing and collections
for outside party expenditures along with various other accounting
processes.
Her
responsibilities during her 19-year tenure with the Company have included
roles in finance and audit-related areas including a variety of positions
in accounting, finance strategies, budgets and performance
analysis.
|
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market
Information
CSX’s common stock is listed on the NYSE, which is its principal trading market,
and is traded over-the-counter and on exchanges nationwide. The
official trading symbol is “CSX.”
Description
of Common and Preferred Stock
A total of 600 million shares of common
stock are authorized, of which 390,526,847 shares were outstanding as of
December 2008. Each share is entitled to one vote in all matters
requiring a vote of shareholders. There are no pre-emptive
rights. At January 30, 2009, the latest practicable date, there were
40,626 common stock shareholders of record. The weighted average of
common shares outstanding, which was used in the calculation of diluted earnings
per share, was approximately 409 million as of December 26,
2008. (See Note 2, Earnings Per Share.)
A total of 25 million shares of
preferred stock is authorized, none of which is currently
outstanding.
The following table sets forth, for the
quarters indicated, the dividends declared and the high and low share prices of
CSX common stock as required by SEC Regulation S-K.
|
Quarter
|
||||||||
|
1st
|
2nd
|
3rd
|
4th
|
Year
|
||||
|
2008
|
||||||||
|
Dividends
|
$0.15
|
$0.18
|
$0.22
|
$0.22
|
$0.77
|
|||
|
Common
Stock Price
|
||||||||
|
High
|
$58.10
|
$70.70
|
$69.50
|
$56.35
|
$70.70
|
|||
|
Low
|
$39.87
|
$55.04
|
$50.50
|
$30.61
|
$30.61
|
|||
|
2007
|
||||||||
|
Dividends
|
$0.12
|
$0.12
|
$0.15
|
$0.15
|
$0.54
|
|||
|
Common
Stock Price
|
||||||||
|
High
|
$42.53
|
$47.38
|
$51.88
|
$46.49
|
$51.88
|
|||
|
Low
|
$33.50
|
$39.36
|
$38.09
|
$40.17
|
$33.50
|
|||
Stock
Performance Graph
The cumulative shareholder returns,
assuming reinvestment of dividends, on $100 invested at December 31, 2003 is
illustrated on the graph below. The Company references the Standard
& Poor 500 Stock Index (“S&P 500”) and the Dow Jones U.S. Transportation
Average Index, which provide comparisons to a broad-based market index and other
companies in the transportation industry. As shown in the graph,
CSX’s five-year stock returns significantly outpaced those of the S&P
500.ock
* The S&P 500 is a registered trademark of the McGraw-Hill Companies, Inc.
CSX
Purchases of Equity Securities
CSX is required to
disclose any purchases of its own common stock for the most recent
quarter. CSX purchases its own shares for two primary reasons: to further
its goals under its share repurchase program and to fund the Company’s
contribution required to be paid in CSX common stock under a 401(k) plan which
covers certain union employees.
In March 2008, CSX
announced an increase to its share repurchase program, prospectively targeting
$3 billion in shares. Since that announcement, CSX has completed its
internal target of $1.25 billion in share repurchases during 2008. As a
result, the company has remaining authority of $1.75
billion. Further repurchases will be dependent upon an
improvement in the capital market and business conditions.
Share repurchase activity for fourth
quarter 2008 was as follows:
|
CSX
Purchases of Equity Securities
for
the Quarter
|
||||||
|
Fourth
Quarter
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Plans or
Programs
|
||
|
Beginning
Fourth Quarter Balance
|
$2,013,000,965
|
|||||
|
October
|
||||||
|
(September
27, 2008 - October 24, 2008)
|
4,776,500
|
$55.05
|
4,776,500
|
$1,750,065,626
|
||
|
November
- December
|
||||||
|
(October
25, 2008 - December 26, 2008)
|
-
|
$ -
|
-
|
$1,750,065,626
|
||
|
Total/Ending
Balance
|
4,776,500
|
$55.05
|
4,776,500
|
$1,750,065,626
|
||
Item 6. Selected Financial Data
Selected financial data and significant
events related to the Company’s financial results for the last five fiscal years
are listed below.
|
Fiscal
Years
|
|||||||
|
(Dollars
in Millions, Except Per Share Amounts)
|
2008
|
2007
|
2006
|
2005
|
2004
|
||
|
Earnings
From Continuing Operations
|
|||||||
|
Operating
Revenue
|
$11,255
|
$10,030
|
$9,566
|
$8,618
|
$8,040
|
||
|
Operating
Expense
|
8,487
|
7,770
|
7,417
|
7,062
|
7,043
|
||
|
Operating
Income
|
$2,768
|
$2,260
|
$2,149
|
$1,556
|
$997
|
||
|
Earnings
from Continuing Operations
|
$1,365
|
$1,226
|
$1,310
|
$720
|
$418
|
||
|
Earnings
Per Share:
|
|||||||
|
From
Continuing Operations
|
$3.41
|
$2.85
|
$2.98
|
$1.67
|
$0.97
|
||
|
From
Continuing Operations, Assuming Dilution
|
3.34
|
2.74
|
2.82
|
1.59
|
0.94
|
||
|
Financial
Position
|
|||||||
|
Cash,
Cash Equivalents and Short-term Investments
|
$745
|
$714
|
$900
|
$602
|
$859
|
||
|
Total
Assets
|
26,288
|
25,534
|
25,129
|
24,232
|
24,605
|
||
|
Long-term
Debt
|
7,512
|
6,470
|
5,362
|
5,093
|
6,248
|
||
|
Shareholders'
Equity
|
8,048
|
8,685
|
8,942
|
7,954
|
6,811
|
||
|
Other
Data Per Common Share
|
|||||||
|
Dividend
Per Share
|
$0.77
|
$0.54
|
$0.33
|
$0.215
|
$0.20
|
||
|
Employees
-- Annual Averages
|
|||||||
|
Rail
|
31,664
|
32,477
|
32,987
|
32,033
|
32,074
|
||
|
Other
|
2,699
|
2,966
|
3,018
|
3,076
|
3,833
|
||
|
Total
|
34,363
|
35,443
|
36,005
|
35,109
|
35,907
|
||
Significant
Events
|
2008
|
--
|
Recognized
an impairment loss of $166 million pre-tax, or $107 million after-tax, on
investment in The Greenbrier
resort.
|
|
|
--
|
Recognized
a tax benefit of $18 million principally related to the settlement of
federal income tax audits and certain other tax
matters.
|
|
|
--
|
Recorded
a non-cash adjustment to income of $30 million pre-tax, or $19 million
after-tax, to correct equity earnings from a non-consolidated
subsidiary.
|
|
2007
|
--
|
Recognized
gains of $27 million pre-tax, or $17 million after-tax, on insurance
recoveries from claims related to Hurricane Katrina. (See Note
13, Hurricane Katrina.)
|
|
2006
|
--
|
Two-for-one
split of the Company’s common stock effective 2006. All periods
have been retroactively restated to reflect the stock
split.
|
|
|
--
|
Recognized
gains of $168 million pre-tax, or $104 million after-tax, on insurance
recoveries from claims related to Hurricane Katrina. (See Note
13, Hurricane Katrina.)
|
|
Significant
events, continued:
|
|
|
--
|
Recognized
an income tax benefit of $151 million primarily related to the resolution
of certain tax matters, including resolution of ordinary course
federal income tax audits for 1994 –
1998.
|
|
|
--
|
Recognized
a $26 million after-tax non-cash gain on additional Conrail property
received.
|
|
2005
|
--
|
Recognized
a charge of $192 million pre-tax, or $123 million after-tax, to repurchase
$1.0 billion of outstanding debt, for costs of the increase in current
market value above original issue value. (See Note 8, Debt and
Credit Agreements.)
|
|
|
--
|
Recognized
an income tax benefit of $71 million for the Ohio legislative change to
gradually eliminate its corporate franchise
tax.
|
|
2004
|
--
|
Recognized
a charge of $71 million pre-tax, or $44 million after-tax, for separation
expenses related to management
restructuring.
|
|
|
--
|
Recognized
a $16 million after-tax non-cash gain on the Conrail spin-off
transaction.
|
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
STRATEGIC OVERVIEW
The
Company provides customers with access to an expansive and interconnected
transportation network that links ports, production facilities and distribution
centers to markets in the Northeast, Midwest and southern states. The
Company serves major markets in the eastern United States and has direct access
to all Atlantic and Gulf Coast ports, as well as the Mississippi River, the
Great Lakes and the St. Lawrence Seaway. The Company also has access
to Pacific ports through alliances with western railroads. Overall, the CSXT
transportation network encompasses approximately 21,000 route miles of track in
23 states, the District of Columbia and the Canadian provinces of Ontario and
Quebec.
The
Company transports a broad portfolio of products, ranging from coal to new
energy sources such as ethanol, to automobiles, chemicals and consumer
electronics. Those goods are transported across the country in a way that
minimizes the impact on the environment, takes traffic off an already congested
highway system and minimizes fuel consumption and transportation
costs.
The
Company’s transportation network serves some of the largest population centers
in the nation. More than two-thirds of Americans live within the
Company’s service territory, accounting for about three-quarters of the nation’s
consumption. With a mix of pricing, productivity gains, and prudent
investment in train network and rail efficiency, the Company will position
itself to take full advantage of an eventual economic recovery.
Over the
past five years, the Company has made substantial strides in improving operating
performance. In 2004, CSXT implemented the ONE Plan, which is being
updated to drive greater network efficiencies. The Company also
continues to advance its Total Service Integration (“TSI”) initiative, which
aims to better align the Company’s capabilities with customer
demands. TSI aims to optimize train size and increase asset
utilization while delivering more reliable service to customers. Increases in
train size reduce the overall number of shipments resulting in less network
congestion and idle time for locomotives and reduce loading and unloading time
for customers. These efforts combined with other efficiencies have
resulted in substantial improvements in the Company’s operating income,
operating ratio/margin and free cash flow.
In 2008,
the Company launched the National Gateway, a multi-million dollar public-private
infrastructure initiative to create a more efficient freight transportation link
between the Mid-Atlantic ports and the Midwest. When completed, the
National Gateway will provide greater capacity for product shipments in and out
of the Midwest, reduce truck traffic on already crowded highways and create new
jobs.
The
global recession that intensified in late 2008 will continue to impact CSX’s
business in 2009, and rail volume will be lower for the year. Beginning in late
December, the Company began taking aggressive actions to manage costs and
right-size resources to match demand conditions. The Company has made
adjustments to the ONE Plan to reduce the size of its scheduled train network in
order to conserve resources. As a result, the Company has begun
furloughing employees (which is a temporary layoff) who will return to work when
business conditions improve. Additionally, the Company has reduced
the number of active locomotives on its network and has placed older locomotives
in storage to reduce maintenance costs. The Company will continue to
modify the ONE Plan and adjust resources accordingly in order to seek to
maximize efficiencies in the current business environment.
|
|
·
|
Revenue
grew $1.2 billion or 12% to $11.3
billion.
|
|
|
·
|
Expenses
increased $717 million or 9% to $8.5
billion.
|
|
|
·
|
Operating
income increased $508 million or 22% to $2.8
billion.
|
|
|
·
|
Service
and safety measurements remained
strong.
|
Despite a
challenging economy in the later part of 2008, CSX delivered solid financial
results. Revenue and revenue per unit increased 12% and 17%, respectively, from
a year ago reflecting yield management initiatives and higher fuel recovery due
to higher fuel prices during most of the year. Under CSXT’s fuel
surcharge program, CSXT bills the customer on a two month lag for
fuel. This lag creates higher fuel recovery in a period when fuel
prices are declining. Conversely, this lag creates lower fuel
recovery in a period when fuel prices are increasing.
These
positive results in revenue were achieved despite volume declines in three of
the Company’s four lines of business. The overall 4% volume decrease
versus last year was primarily driven by continued weakness in the merchandise
market relating to housing construction and associated markets as well as
declines in automotive production.
For
additional information, refer to Rail and Intermodal Results of Operations
discussed on pages 38 through 40.
Throughout
2008, the Company continued its focus on safety and operating
performance. Leadership and high levels of employee commitment to the
Company’s safety programs delivered solid improvement in both FRA personal
injury and train accident frequencies. Personal injury frequency
improved to a record 1.14, a 7% improvement compared to 2007. FRA train accident
frequency fell to 2.68, an 11% improvement versus the prior year.
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, communication, structured
competition and leadership to create a safer environment for employees and the
public. Continued capital investment in Company assets, including
track, bridges, signals, and detection technology, also supports improved safety
performance.
Key
service metrics remained at historically high levels in 2008. On-time
train originations and arrivals, 79% and 70% respectively, were identical over
both years. Average dwell rose slightly to 23.3 hours, primarily due
to lower demand levels and resulting surpluses in certain equipment types.
Average train velocity declined 1%, although the network remained
fluid. Cars-on-line rose slightly with cars counts increasing
1%. The Company aims to improve key operating measures to achieve
increased efficiency and higher levels of service reliability.
|
RAIL
OPERATING STATISTICS (Estimated)
|
Fiscal
Years
|
Improvement/
|
|||
|
2008
|
2007
|
(Decline)
|
%
|
||
|
Service
|
|||||
|
Measurements
|
FRA
Personal Injuries Frequency Index
|
1.14
|
1.23
|
7
|
%
|
|
FRA
Train Accident Rate
|
2.68
|
3.01
|
11
|
||
|
On-Time
Train Originations
|
79%
|
79%
|
-
|
||
|
On-Time
Destination Arrivals
|
70%
|
70%
|
-
|
||
|
Dwell
|
23.3
|
23.2
|
-
|
||
|
Cars-On-Line
|
223,574
|
221,943
|
(1)
|
||
|
System
Train Velocity
|
20.5
|
20.8
|
(1)
|
||
|
Increase/
|
|||||
|
(Decrease)
|
|||||
|
Resources
|
Route
Miles
|
21,205
|
21,227
|
-
|
%
|
|
Locomotives
(owned and long-term leased)
|
4,143
|
4,007
|
3
|
||
|
Freight
Cars (owned and long-term leased)
|
91,350
|
94,364
|
(3)
|
%
|
|
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).
In addition to producing sound
financial, safety and service results, CSX continued to focus on investing in
its business and creating long-term value for shareholders during
2008. The company has taken a balanced approach in deploying its
capital through strategic investment, share repurchases and increased dividends
for the benefit of shareholders.
Capital
expenditures of $1.7 billion in 2008 were slightly lower than prior
year. The Company remains committed to maintaining and improving its
existing infrastructure and to positioning itself for long-term growth through
expanding network and terminal capacity. As described below, free
cash flow before dividends increased $845 million to $1.2
billion. This increase was primarily driven by increased cash from
operations which were a result of higher earnings.
CSX also steadily increased the
quarterly dividend in 2008. First, CSX increased its quarterly
dividend from $0.15 to $0.18 during the second quarter of 2008. It
then increased the dividend again during the third quarter of 2008 to $0.22,
which represented a 47% increase from the quarterly dividend level at fourth
quarter 2007. Additionally, CSX completed $1.25 billion of its $3
billion share repurchase program announced during 2008. See Note 1,
Nature of Operations and Significant Accounting Policies.
Non-GAAP
Reconciliation
Free cash flow is considered a non-GAAP
financial measure under SEC Regulation G, Disclosure of Non-GAAP
Measures. Management believes, however, that free cash flow is important
in evaluating the Company’s financial performance and measures an ability to
generate cash without incurring additional external financing. Free cash flow
should be considered in addition to, rather than a substitute for, cash provided
by operating activities.
Free cash flow is calculated by using
net cash from operations and adjusting for property additions and certain other
investing activities. Also, added to free cash flow is the Company’s
42% economic interest in Conrail’s free cash flow which is not consolidated in
CSX amounts.
The following table reconciles cash
provided by operating activities (GAAP measure) to free cash flow (non-GAAP
measure).
|
Fiscal
Years
|
||||
|
2008
|
2007
|
Change
|
||
|
(Dollars
in Millions)
|
||||
|
Net
cash provided by operating activities
|
$2,914
|
$2,184
|
$730
|
|
|
Property
additions
|
(1,740)
|
(1,773)
|
33
|
|
|
Other
investing activities
|
36
|
(41)
|
77
|
|
|
Conrail
free cash flow
|
11
|
6
|
5
|
|
|
Free
Cash Flow (before payment of dividends)
|
$1,221
|
$376
|
$845
|
|
FORWARD-LOOKING STATEMENTS
Certain
statements in this report and in other materials filed with the SEC, as well as
information included in oral statements or other written statements made by the
Company, are forward-looking statements within the meaning of the Securities Act
of 1933 and the Securities Exchange Act of 1934. These
forward-looking statements include, among others, statements
regarding:
|
|
·
|
expectations
as to results of operations and operational
initiatives;
|
|
|
·
|
expectations
as to the effect of claims, lawsuits, environmental costs, commitments,
contingent liabilities, labor negotiations or agreements on the Company’s
financial condition, result of operations or
liquidity;
|
|
|
·
|
management’s
plans, goals, strategies and objectives for future operations and other
similar expressions concerning matters that are not historical facts, and
management’s expectations as to future performance and operations and the
time by which objectives will be achieved;
and
|
|
|
·
|
future
economic, industry or market conditions or performance and their effect on
the Company’s financial condition, results of operations or
liquidity.
|
Forward-looking statements are
typically identified by words or phrases such as “believe,” “expect,”
“anticipate,” “project,” “estimate,” “preliminary” and similar expressions. The
Company cautions against placing undue reliance on forward-looking statements,
which reflect its good faith beliefs with respect to future events and are based
on information currently available to it as of the date the forward-looking
statement is made. Forward-looking statements should not
be read as a guarantee of future performance or results and will not necessarily
be accurate indications of the timing when, or by which, such performance or
results will be achieved.
Forward-looking
statements are subject to a number of risks and uncertainties and actual
performance or results could differ materially from those anticipated by these
forward-looking statements. The Company undertakes no obligation to update or
revise any forward-looking statement. If the Company does update any
forward-looking statement, no inference should be drawn that the Company will
make additional updates with respect to that statement or any other
forward-looking statements. The following important factors, in
addition to those discussed in Item 1A (Risk Factors) and elsewhere in this
report, may cause actual results to differ materially from those contemplated by
these forward-looking statements:
|
|
·
|
legislative,
regulatory or legal developments involving transportation, including rail
or intermodal transportation, the environment, hazardous
materials, taxation, including the outcome of tax claims and
litigation, the potential enactment of initiatives to re-regulate the rail
industry and the ultimate outcome of shipper and rate claims subject to
adjudication;
|
|
|
·
|
the
outcome of litigation and claims, including, but not limited to, those
related to fuel surcharge, environmental contamination, personal injuries
and occupational illnesses;
|
|
|
·
|
material
changes in domestic or international economic or business conditions,
including those affecting the transportation industry such as access to
capital markets, ability to revise debt arrangements as contemplated,
customer demand, customer acceptance of price increases, effects of
adverse economic conditions affecting shippers and adverse economic
conditions in the industries and geographic areas that consume and produce
freight;
|
|
|
·
|
worsening
conditions in the financial markets that may affect timely access to
capital markets, as well as the cost of
capital;
|
|
|
·
|
availability
of insurance coverage at commercially reasonable rates or insufficient
insurance coverage to cover claims or
damages;
|
|
|
·
|
changes
in fuel prices, surcharges for fuel and the availability of
fuel;
|
|
|
·
|
the
impact of increased passenger activities in capacity-constrained areas or
regulatory changes affecting when CSXT can transport freight or service
routes;
|
|
|
·
|
natural
events such as severe weather conditions, including floods, fire,
hurricanes and earthquakes, a pandemic crisis affecting the health of the
Company’s employees, its shippers or the consumers of goods, or other
unforeseen disruptions of the Company’s operations, systems, property or
equipment;
|
|
|
·
|
noncompliance
with applicable laws or
regulations;
|
|
|
·
|
the
inherent 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
costs and labor difficulties, including stoppages affecting either the
Company’s operations or the customers’ ability to deliver goods to the
Company for shipment;
|
|
|
·
|
competition
from other modes of freight transportation, such as trucking and
competition and consolidation within the transportation industry
generally;
|
|
|
·
|
the
Company’s success in implementing its strategic plans and operational
objectives and improving operating
efficiency; and
|
|
|
·
|
changes
in operating conditions and costs or commodity
concentrations.
|
Other
important assumptions and factors that could cause actual results to differ
materially from those in the forward-looking statements are specified elsewhere
in this report and in CSX’s other SEC reports, accessible on the SEC’s website
at www.sec.gov
and the Company’s website at www.csx.com.
FINANCIAL RESULTS OF OPERATIONS
2008
vs. 2007 Results of Operations
|
(Dollars
in Millions)
|
||||||||||||
|
Fiscal
Year
|
||||||||||||
|
CSX
|
||||||||||||
|
Rail (b)
|
Intermodal
|
Consolidated (a)
|
||||||||||
|
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
$
Change
|
%
Change
|
|||||
|
Revenue
|
$9,789
|
$8,674
|
$1,466
|
$1,356
|
$11,255
|
$10,030
|
$1,225
|
12
|
%
|
|||
|
Operating
Expense:
|
||||||||||||
|
Labor
and Fringe
|
2,879
|
2,905
|
76
|
81
|
2,955
|
2,986
|
31
|
(1)
|
||||
|
Materials,
Supplies and Other
(a)
|
1,933
|
1,747
|
200
|
178
|
2,133
|
1,925
|
(208)
|
11
|
||||
|
Fuel
(a)
|
1,810
|
1,307
|
7
|
5
|
1,817
|
1,312
|
(505)
|
38
|
||||
|
Depreciation
|
879
|
849
|
25
|
34
|
904
|
883
|
(21)
|
2
|
||||
|
Equipment
and Other Rents
|
317
|
341
|
108
|
110
|
425
|
451
|
26
|
(6)
|
||||
|
Inland
Transportation
|
(507)
|
(448)
|
760
|
688
|
253
|
240
|
(13)
|
5
|
||||
|
Gain
on Insurance Recoveries
|
-
|
(27)
|
-
|
-
|
-
|
(27)
|
(27)
|
(100)
|
||||
|
Total
Expense
|
7,311
|
6,674
|
1,176
|
1,096
|
8,487
|
7,770
|
(717)
|
9
|
||||
|
Operating
Income
|
$2,478
|
$2,000
|
$290
|
$260
|
$2,768
|
$2,260
|
$508
|
22
|
||||
|
Other
Income (Expense) - Net
|
(103)
|
89
|
(192)
|
(216)
|
||||||||
|
Interest
Expense
|
(519)
|
(417)
|
(102)
|
24
|
||||||||
|
Income
Tax Expense
|
(781)
|
(706)
|
(75)
|
11
|
||||||||
|
Earnings
from Continuing Operations
|
1,365
|
1,226
|
139
|
11
|
||||||||
|
Discontinued
Operations
|
-
|
110
|
(110)
|
(100)
|
||||||||
|
Net
Earnings
|
$1,365
|
$1,336
|
$29
|
2
|
||||||||
|
Earnings
Per Diluted Share
|
||||||||||||
|
From
Continuing Operations
|
3.34
|
2.74
|
0.60
|
22
|
||||||||
|
Discontinued
Operations
|
-
|
0.25
|
(0.25)
|
(100)
|
||||||||
|
Net
Earnings
|
3.34
|
2.99
|
0.35
|
12
|
%
|
|||||||
|
Operating
Ratio
|
74.7%
|
76.9%
|
80.2%
|
80.8%
|
75.4%
|
77.5%
|
||||||
|
Total
Assets
|
$25,343
|
$24,502
|
$321
|
$283
|
||||||||
|
(a)
|
Beginning
in 2008, certain items have been reclassified within the income
statement. Certain prior-year data have been reclassified to
conform to the 2008 presentation.
|
|
|
·
|
The Company reclassified all
items within other operating income and certain items within other income
into the Rail segment. As a result of this change, CSX consolidated
operating income and Surface Transportation operating income are now the
same; therefore, the Company will no longer report separate Surface
Transportation results. The Rail segment was not materially impacted by
these reclassifications.
|
|
|
·
|
The Company
reclassified all non-locomotive fuel related costs previously included in
materials, supplies and other into fuel on the Company’s consolidated
income statement so that it now includes all fuel used for operations and
maintenance. For 2008 and 2007, these
amounts were $150 million and $102 million,
respectively.
|
|
(b)
|
In
addition to CSXT, the Rail segment includes non-railroad subsidiaries such
as TDSI, Transflo, CSX Technology and other
subsidiaries.
|
|
Volume
(Thousands of Units); Revenue (Dollars in Millions); Revenue Per Unit
(Dollars)
|
||||||||||||||
|
Fiscal Years
|
||||||||||||||
|
Volume
|
Revenue
|
Revenue
Per Unit
|
||||||||||||
|
2008
|
2007
|
%
Change
|
2008
|
2007
|
%
Change
|
2008
|
2007
|
%
Change
|
||||||
|
Chemicals
|
488
|
522
|
(7)
|
%
|
$1,437
|
$1,313
|
9
|
%
|
$2,945
|
$2,515
|
17
|
%
|
||
|
Metals
|
337
|
355
|
(5)
|
751
|
702
|
7
|
2,228
|
1,977
|
13
|
|||||
|
Total
Industrial
|
825
|
877
|
(6)
|
2,188
|
2,015
|
9
|
2,652
|
2,298
|
15
|
|||||
|
Emerging
Markets
|
429
|
491
|
(13)
|
628
|
605
|
4
|
1,464
|
1,232
|
19
|
|||||
|
Forest
Products
|
316
|
352
|
(10)
|
722
|
722
|
-
|
2,285
|
2,051
|
11
|
|||||
|
Food
and Consumer
|
199
|
212
|
(6)
|
456
|
441
|
3
|
2,291
|
2,080
|
10
|
|||||
|
Total
Housing
|
944
|
1,055
|
(11)
|
1,806
|
1,768
|
2
|
1,913
|
1,676
|
14
|
|||||
|
Agricultural
Products
|
432
|
410
|
5
|
1,011
|
786
|
29
|
2,340
|
1,917
|
22
|
|||||
|
Phosphates
and Fertilizers
|
335
|
362
|
(7)
|
460
|
421
|
9
|
1,373
|
1,163
|
18
|
|||||
|
Total
Agriculture
|
767
|
772
|
(1)
|
1,471
|
1,207
|
22
|
1,918
|
1,563
|
23
|
|||||
|
Total
Merchandise
|
2,536
|
2,704
|
(6)
|
5,465
|
4,990
|
10
|
2,155
|
1,845
|
17
|
|||||
|
Coal
|
1,779
|
1,771
|
-
|
3,110
|
2,483
|
25
|
1,748
|
1,402
|
25
|
|||||
|
Coke
and Iron Ore
|
100
|
91
|
10
|
175
|
120
|
46
|
1,750
|
1,319
|
33
|
|||||
|
Total
Coal
|
1,879
|
1,862
|
1
|
3,285
|
2,603
|
26
|
1,748
|
1,398
|
25
|
|||||
|
Automotive
|
343
|
439
|
(22)
|
784
|
839
|
(7)
|
2,286
|
1,911
|
20
|
|||||
|
Other
|
-
|
-
|
-
|
255
|
242
|
5
|
-
|
-
|
-
|
|||||
|
Total
Rail
|
4,758
|
5,005
|
(5)
|
9,789
|
8,674
|
13
|
2,057
|
1,733
|
19
|
|||||
|
International
|
1,000
|
1,132
|
(12)
|
509
|
525
|
(3)
|
509
|
464
|
10
|
|||||
|
Domestic
|
1,069
|
979
|
9
|
929
|
807
|
15
|
869
|
824
|
5
|
|||||
|
Other
|
-
|
-
|
-
|
28
|
24
|
17
|
-
|
-
|
-
|
|||||
|
Total
Intermodal
|
2,069
|
2,111
|
(2)
|
1,466
|
1,356
|
8
|
709
|
642
|
10
|
|||||
|
Total
|
6,827
|
7,116
|
(4)
|
%
|
$11,255
|
$10,030
|
12
|
%
|
$1,649
|
$1,409
|
17
|
%
|
||
Prior
periods have been reclassified to conform to the current
presentation.
2008
vs. 2007 Rail Results of Operations
Rail
Operating Revenue
Rail
revenue, which excludes Intermodal, is categorized by three main lines of
business: merchandise, coal and automotive. Rail revenue increased
$1.1 billion, or 13%, to $9.8 billion in 2008 as compared to prior year. CSXT
was able to achieve continued pricing gains predominantly due to the overall
cost and service advantages that the Company’s rail based solutions provide to
customers versus other modes of transportation. Higher fuel cost recovery,
coupled with favorable pricing, more than offset volume losses driven by the
weakening economy.
Merchandise
Chemicals – Revenue
and revenue-per-unit improved due to a continued favorable pricing environment
and fuel recoveries. Volume was down as a result of declines in plastic and
plastic feedstock shipments, driven by weakness in housing, automotive and
consumer goods markets.
Emerging Markets –
Revenue and revenue-per-unit grew due to continued yield management efforts and
favorable fuel recovery. Volume was down as a result of declines in aggregate
shipments, such as crushed stone, sand and gravel, caused by a continued
weakness in both residential and non-residential construction. These
declines more than offset growth in shipments of scrubber limestone and
transportation equipment.
Forest Products –
Revenue was flat and volume declined as shipments of building products slowed
due to the decline in residential housing starts. Further driving
volume declines was a reduction in printing paper and newsprint as a combination
of electronic media substitution and reduced advertising pages affected
demand.
Agricultural Products
– Revenue and volume increased due to continued growth in ethanol shipments and
strong domestic demand in feed ingredients. Revenue-per-unit grew as a result of
continued focus on yield management and increased fuel recovery.
Metals – Revenue and
revenue-per-unit increased due to higher fuel recovery and continued pricing
actions. Lower demand for steel due to continued weakness in construction
and automobile production resulted in volume declines. These declines
more than offset growth in shipments of pipe which were driven by increases in
drilling activity and pipeline construction.
Phosphates and
Fertilizers – Volume declined in phosphate shipments as weak
international and domestic demand resulted in plant
curtailments. Revenue-per-unit increases were driven primarily by
yield initiatives and increased fuel recovery.
Food and Consumer –
Volume declined with decreased demand for building products, appliances and
consumer goods driven by the weakening economy and housing
market. Revenue-per-unit growth resulted from favorable fuel
recoveries and yield initiatives.
Coal
Favorable
pricing and fuel recovery positively influenced revenue and revenue-per-unit.
Volumes were slightly up as strength in the export and river markets were offset
by weakness in electric utility shipments.
Automotive
Volume
and revenue declined due to a reduction in light vehicle production, several
plant closures, and lower vehicle sales driven by the slowing economy and tight
credit environment. Consistent with the overall automotive market, volumes
continued to shift to foreign brands produced domestically. Revenue-per-unit
improved due to yield initiatives and higher fuel recoveries.
Rail
Operating Expense
Total
rail operating expenses for 2008 increased 10% or $637 million to $7.3 billion
compared to the prior year. The description of what is included in
each category as well as significant year over year changes is described
below.
Labor and Fringe expenses
include employee compensation and benefit programs. These expenses
are primarily affected by inflation, headcount, wage rates, incentives earned,
healthcare plan costs, and pension and other post-retirement plan
expenses. These expenses decreased $26 million primarily driven by
reduced staffing levels and lower benefit costs which were mostly offset by wage
inflation.
Materials, Supplies and
Other expenses
consist primarily of materials and contracted services to maintain
infrastructure and equipment and for terminal services at intermodal and
automotive facilities. This category also includes costs related to
casualty claims, environmental remediation, train accidents, utilities, property
and sales taxes and professional services. Materials, supplies and
other expenses increased by $186 million in 2008 primarily due to favorable
personal injury reserve benefits in the prior year. Additionally,
these costs increased as a result of inflation, proxy contest and related
litigation costs and other items.
Fuel expense
includes locomotive diesel fuel as well as non-locomotive fuel. This
expense is driven by the market price and locomotive consumption of diesel
fuel. This expense increased $503 million due to higher fuel prices
during most of the year which more than offset increased fuel
efficiency.
Depreciation expense
primarily relates to recognizing the cost of a capital asset, such as
locomotives, railcars and track structure, over its useful life. This
expense is impacted primarily by the capital expenditures made each
year. This expense increased $30 million primarily due to a larger
asset base as a result of higher capital spending. This increase was
partially offset by lower depreciation rates resulting from periodic asset life
studies.
Equipment and Other
Rents primarily includes
rent paid for freight cars owned by other railroads or private companies, net of
rents received by CSXT for use of CSXT equipment. This category of
expenses also includes lease expenses primarily for locomotives, railcars,
containers and trailers, office and other rentals. These expenses decreased $24
million due mainly to lower volume and fewer locomotive leases.
Inland
Transportation expense
included in the rail segment is primarily for amounts paid to CSXT from
Intermodal for shipments on CSXT’s network. These intercompany
charges are eliminated in consolidated results. The remaining
consolidated amount is expense paid by Intermodal to other transportation
companies.
Gain on Insurance
Recoveries includes gains on insurance recoveries related to Hurricane
Katrina. The decrease of $27 million is attributable to gains
recognized in 2007 that were not repeated in 2008.
2008
vs. 2007 Intermodal Results of Operations
Intermodal
operating income increased to $290 million, an increase of 12% or $30 million
versus last year. Improved fuel recovery and a favorable traffic mix boosted
revenue per unit and allowed for an 8% increase in revenue despite 2% fewer
loads. The volume impact of the continued deceleration of
international traffic was somewhat offset by domestic growth in railroad
provided container shipments, over-the-road truckload conversion, and short-haul
moves in the Southeast.
Intermodal
operating expense increased 7% or $80 million to $1.2 billion driven primarily
by higher fuel prices and increased purchased transportation expense linked to
growth in domestic transcontinental traffic. Additionally,
depreciation decreased based on the results of a periodic review of asset useful
lives that was completed a year ago.
2008
vs. 2007 Additional Consolidated Results
Other
Income (Expense) – Net
Other
income decreased $192 million to a net expense of $103 million in 2008 primarily
due to the recognition of a pre-tax impairment loss of $166 million related
to the write-down
of the investment in The Greenbrier resort.
Interest
Expense
Interest expense increased $102 million
in 2008 to $519 million due primarily to higher average debt balances in
2008.
Income
Tax Expense
Income tax expense increased $75
million to $781 million which was driven by higher operating income in
2008. This increase was partially offset by an $18 million income tax
benefit during 2008 principally related to the settlement of federal income tax
audits and certain other tax matters.
Net
Earnings
Net earnings increased $29
million to $1.4 billion and earnings per diluted share increased $.35 to $3.34
in 2008. This increase was primarily due to the following
factors:
|
|
·
|
Operating
income increased $508 million primarily driven by higher
revenues. This increase in operating income was offset by an
impairment loss associated with The Greenbrier resort along with higher
interest expense due to higher debt
levels.
|
|
|
·
|
Offsetting
this increase was a $110 million 2007 tax benefit associated with the sale
of CSX’s International Terminals business which is reported as
discontinued operations in the prior
year.
|
2007 vs. 2006 Results of
Operations
|
(Dollars
in Millions)
|
||||||||||||
|
Fiscal
Year
|
||||||||||||
|
CSX
|
||||||||||||
|
Rail (b)
|
Intermodal
|
Consolidated (a)
|
||||||||||
|
2007
|
2006
|
2007
|
2006
|
2007
|
2006
|
$
Change
|
%
Change
|
|||||
|
Revenue
|
$8,674
|
$8,154
|
$1,356
|
$1,412
|
$10,030
|
$9,566
|
$464
|
5
|
%
|
|||
|
Operating
Expense:
|
||||||||||||
|
Labor
and Fringe
|
2,905
|
2,848
|
81
|
82
|
2,986
|
2,930
|
(56)
|
2
|
||||
|
Materials,
Supplies and Other
(a)
|
1,747
|
1,653
|
178
|
187
|
1,925
|
1,840
|
(85)
|
5
|
||||
|
Fuel
(a)
|
1,307
|
1,204
|
5
|
5
|
1,312
|
1,209
|
(103)
|
9
|
||||
|
Depreciation
|
849
|
819
|
34
|
38
|
883
|
857
|
(26)
|
3
|
||||
|
Equipment
and Other Rents
|
341
|
377
|
110
|
130
|
451
|
507
|
56
|
(11)
|
||||
|
Inland
Transportation
|
(448)
|
(462)
|
688
|
704
|
240
|
242
|
2
|
(1)
|
||||
|
Gain
on Insurance Recoveries
|
(27)
|
(166)
|
-
|
(2)
|
(27)
|
(168)
|
(141)
|
(84)
|
||||
|
Total
Expense
|
6,674
|
6,273
|
1,096
|
1,144
|
7,770
|
7,417
|
(353)
|
5
|
||||
|
Operating
Income
|
$2,000
|
$1,881
|
$260
|
$268
|
$2,260
|
$2,149
|
$111
|
5
|
||||
|
Other
Income (Expense) - Net
|
89
|
84
|
5
|
6
|
||||||||
|
Interest
Expense
|
(417)
|
(392)
|
(25)
|
6
|
||||||||
|
Income
Tax Expense
|
(706)
|
(531)
|
(175)
|
33
|
||||||||
|
Earnings
from Continuing Operations
|
1,226
|
1,310
|
(84)
|
(6)
|
||||||||
|
Discontinued
Operations
|
110
|
-
|
110
|
NM
|
||||||||
|
Net
Earnings
|
$1,336
|
$1,310
|
$26
|
2
|
||||||||
|
Earnings
Per Diluted Share
|
||||||||||||
|
From
Continuing Operations
|
2.74
|
2.82
|
(0.08)
|
(3)
|
||||||||
|
Discontinued
Operations
|
0.25
|
-
|
0.25
|
NM
|
||||||||
|
Net
Earnings
|
2.99
|
2.82
|
0.17
|
6
|
%
|
|||||||
|
Operating
Ratio
|
76.9%
|
76.9%
|
80.8%
|
81.0%
|
77.5%
|
77.5%
|
||||||
|
Total
Assets
|
$24,502
|
$24,212
|
$283
|
$276
|
||||||||
NM
– not meaningful
|
|
a)
|
Beginning
in 2008, certain items have been reclassified within the income
statement. Certain prior-year data have been reclassified to
conform to the 2008 presentation.
|
|
|
·
|
The
Company reclassified all items within other operating income and certain
items within other income into the Rail segment. As a result of this
change, CSX consolidated operating income and Surface Transportation
operating income are now the same; therefore, the Company will no longer
report separate Surface Transportation results. The Rail segment was not
materially impacted by these
reclassifications.
|
|
|
·
|
The
Company reclassified all non-locomotive fuel related costs previously
included in materials, supplies and other into fuel on the Company’s
consolidated income statement so that it now includes all fuel used for
operations and maintenance. For 2007 and 2006, these amounts
were $102 million and $97 million,
respectively.
|
|
|
b)
|
In
addition to CSXT, the Rail segment includes non-railroad subsidiaries such
as TDSI, Transflo, CSX Technology, and other
subsidiaries.
|
|
Volume
(Thousands of Units); Revenue (Dollars in Millions); Revenue Per Unit
(Dollars)
|
|||||||||||||||
|
Fiscal
Years
|
|||||||||||||||
|
Volume
|
Revenue
|
Revenue
Per Unit
|
|||||||||||||
|
2007
|
2006
|
%
Change
|
2007
|
2006
|
%
Change
|
2007
|
2006
|
%
Change
|
|||||||
|
Chemicals
|
522
|
528
|
(1)
|
%
|
$1,313
|
$1,210
|
9
|
%
|
$2,515
|
$2,292
|
10
|
%
|
|||
|
Metals
|
355
|
364
|
(2)
|
702
|
673
|
4
|
1,977
|
1,849
|
7
|
||||||
|
Total
Industrial
|
877
|
892
|
(2)
|
2,015
|
1,883
|
7
|
2,298
|
2,111
|
9
|
||||||
|
Emerging
Markets
|
491
|
524
|
(6)
|
605
|
580
|
4
|
1,232
|
1,107
|
11
|
||||||
|
Forest
Products
|
352
|
404
|
(13)
|
722
|
773
|
(7)
|
2,051
|
1,913
|
7
|
||||||
|
Food
and Consumer
|
212
|
245
|
(13)
|
441
|
477
|
(8)
|
2,080
|
1,947
|
7
|
||||||
|
Total
Housing
|
1,055
|
1,173
|
(10)
|
1,768
|
1,830
|
(3)
|
1,676
|
1,560
|
7
|
||||||
|
Agricultural
Products
|
410
|
397
|
3
|
786
|
681
|
15
|
1,917
|
1,715
|
12
|
||||||
|
Phosphates
and Fertilizers
|
362
|
362
|
-
|
421
|
354
|
19
|
1,163
|
978
|
19
|
||||||
|
Total
Agriculture
|
772
|
759
|
2
|
1,207
|
1,035
|
17
|
1,563
|
1,364
|
15
|
||||||
|
Total
Merchandise
|
2,704
|
2,824
|
(4)
|
4,990
|
4,748
|
5
|
1,845
|
1,681
|
10
|
||||||
|
Coal
|
1,771
|
1,798
|
(2)
|
2,483
|
2,259
|
10
|
1,402
|
1,256
|
12
|
||||||
|
Coke
and Iron Ore
|
91
|
94
|
(3)
|
120
|
119
|
1
|
1,319
|
1,266
|
4
|
||||||
|
Total
Coal
|
1,862
|
1,892
|
(2)
|
2,603
|
2,378
|
9
|
1,398
|
1,257
|
11
|
||||||
|
Automotive
|
439
|
463
|
(5)
|
839
|
847
|
(1)
|
1,911
|
1,829
|
4
|
||||||
|
Other
|
-
|
-
|
-
|
242
|
181
|
34
|
-
|
-
|
-
|
||||||
|
Total
Rail
|
5,005
|
5,179
|
(3)
|
8,674
|
8,154
|
6
|
1,733
|
1,574
|
10
|
||||||
|
International
|
1,132
|
1,281
|
(12)
|
525
|
580
|
(9)
|
464
|
453
|
2
|
||||||
|
Domestic
|
979
|
898
|
9
|
807
|
786
|
3
|
824
|
875
|
(6)
|
||||||
|
Other
|
-
|
-
|
-
|
24
|
46
|
(48)
|
-
|
-
|
-
|
||||||
|
Total
Intermodal
|
2,111
|
2,179
|
(3)
|
1,356
|
1,412
|
(4)
|
642
|
648
|
(1)
|
||||||
|
Total
|
7,116
|
7,358
|
(3)
|
%
|
$10,030
|
$9,566
|
5
|
%
|
$1,409
|
$1,300
|
8
|
%
|
|||
2007
vs. 2006 Rail Results of Operations
Rail
Operating Revenue
Rail
revenue is categorized by three main lines of business: merchandise, coal and
automotive. Revenue increased $520 million, or 6%, to $8.7 billion in 2007
as compared to prior year. CSXT was able to achieve continued pricing
gains predominantly due to the overall cost and service advantages that the
Company’s rail based solutions provide to customers versus other modes of
transportation. These pricing gains more than offset volume weakness in housing
construction, domestic automobile production and related markets.
Merchandise
Chemicals – Revenue
and revenue per unit improved due to a continued favorable pricing
environment. Overall volume declined slightly driven by reduced
chlorine shipments and weakness in propane demand due to a milder winter in
2007.
Emerging Markets –
Revenue and revenue per unit grew due to continued yield management
efforts. Volume was down as a result of declines in aggregate
shipments, such as crushed stone, sand and gravel, caused by a continued
weakness in residential construction.
Forest Products –
Revenue and volume declined as shipments of building products and paper slowed
due to the decline in residential housing starts and electronic media
substitution.
Agricultural Products
– Strong domestic demand in feed ingredients and soybean shipments supported
growth in volume and revenue. Ethanol volumes also increased as a
result of expanded use in the Northeast. Revenue per unit grew as a
result of continued focus on yield management.
Metals – Revenue and
revenue per unit increased due to continued pricing actions. Lower demand
for steel due to weakness in housing construction and domestic automobile
production resulted in volume declines.
Phosphates and
Fertilizers – Volume was flat as higher domestic demand was offset by a
decrease in export shipments. Favorable mix driven by these volume
changes coupled with price increases resulted in significantly improved revenue
and revenue per unit.
Food and Consumer –
Revenue and volume declines were driven by decreased demand for building
products, appliances and roofing granules, which are used to make
shingles.
Coal
Favorable
pricing positively influenced revenue and revenue per unit. Overall tonnage was
flat even though carloads slightly declined due to the use of higher capacity
cars allowing the movement of more tons with fewer cars. Strength in
the export market was offset by weakness in utility shipments as stockpiles
remain at record high levels.
Automotive
Volume
declined due to a reduction in light vehicle production, several plant closures,
and lower vehicle sales driven by the slowing economy and tight credit
environment. Consistent with the overall automotive market, volumes
continued to shift to foreign brands produced domestically.
Other
Rail Revenue
The
change is primarily due to increased shipments by the Company’s regional
railroads and more transloading activities associated with ethanol
shipments.
Rail
Operating Expense
Total
rail operating expenses for 2007 increased 6% or $401 million to $6.7 billion
compared to the prior year. The description of what is included in
each category as well as significant year over year changes is described
below.
Labor and Fringe expenses
include employee compensation and benefit programs. These expenses
are primarily affected by inflation, headcount, wage rates, incentives earned,
healthcare plan costs, and pension and other post-retirement plan
expenses. These expenses increased $57 million primarily due to wage
and benefit inflation, which was partially offset by improved productivity and
reduced staffing levels.
Materials, Supplies and
Other expenses
consist primarily of materials and contracted services to maintain
infrastructure and equipment and for terminal services at intermodal and
automotive facilities. This category also includes costs related to
personal injury claims, environmental remediation, train accidents, utilities,
property and sales taxes and professional services. Overall,
materials, supplies and other expenses increased by $94 million in 2007
primarily due to inflation, higher train accident related costs and higher
environmental costs. These costs were partially offset by $99 million
of favorable personal injury reserve adjustments during the
year. This was due to a trend of significant decreases in the number
and severity of work-related injuries for CSXT employees since
2003.
Depreciation expense
primarily relates to recognizing the cost of a capital asset, such as
locomotives, railcars and track structure, over its useful life. This
expense is impacted primarily by the capital expenditures made each
year. This expense increased $30 million primarily due to a larger
asset base as a result of higher capital spending partially offset by lower
depreciation rates resulting from periodic asset life studies.
Fuel expense
includes locomotive diesel fuel as well as non-locomotive fuel. This
expense is driven by the market price and locomotive consumption of diesel fuel
offset by the effects of any hedging activities. This expense
increased $103 million primarily due to higher fuel prices and prior year hedge
benefits that were not repeated during 2007 due to the expiration of the fuel
hedge program.
Equipment and Other
Rents primarily includes
rent paid for freight cars owned by other railroads or private companies, net of
rents received by CSXT for use of CSXT equipment. This category of
expenses also includes lease expenses primarily for locomotives, railcars,
containers and trailers, office and other rentals. These expenses decreased $36
million due mainly to lower volume and fewer locomotive leases.
Inland
Transportation expense
included in the rail segment is for amounts paid to CSXT from Intermodal for
shipments on CSXT’s network. These intercompany charges are
eliminated in consolidated results. The remaining consolidated amount
is expense paid by Intermodal to other transportation companies.
Gain on Insurance
Recoveries includes gains on insurance recoveries related to Hurricane
Katrina. While gains were recognized in both years, the $139 million
decrease for 2007 was due to higher cash receipts for lost profits and
replacement value of property compared to the value of the property that was
damaged in 2006 versus 2007.
2007
vs. 2006 Intermodal Results of Operations
Intermodal
operating income declined 3% or $8 million to $260 million versus last year on
4% lower revenue, partially offset by volume related cost
savings. Revenue and volume decreases reflect losses of several
international customers, the slowing of Asian imports throughout the year and
mix impact related to growth in new short-haul domestic
traffic. Other revenue declined $22 million from the termination of
an agreement relating to the storage of containers as well as lower general
business levels. Revenue per unit declined slightly with yield gains in the
international market being offset by mix changes related to the new short-haul
domestic traffic.
Despite
rising fuel costs, Intermodal operating expense declined 4% or $48 million to
$1.1 billion driven by lower car hire expense related to volume and improved
operational efficiency. Additionally, depreciation decreased based on
the results of a periodic review of asset useful lives.
2007
vs. 2006 Additional Consolidated Results of Operations
Other
Income
Other income of $89 million in 2007 was
relatively flat compared to the prior year.
Interest
Expense
Interest expense increased $25 million
to $417 million in 2007 primarily due to higher average debt
balances.
Income
Tax Expense
Income tax expense increased $175
million to $706 million. This change is primarily due to higher
earnings in 2007 and a prior year income tax benefit of $151 million related to
the resolution of certain tax matters that was not repeated.
Net
Earnings
Consolidated net earnings increased $26
million and totaled $1.3 billion, and earnings per diluted share increased $0.17
to $2.99. The principal elements of these increases
were:
|
|
·
|
Operating
income increased $111 million driven by strong operating
results. These strong results were more than offset by $151
million of prior year income tax benefits that were not
repeated. The net of these and other items decreased earnings
from continuing operations by $84 million or $.08 per diluted
share.
|
|
|
·
|
The
$110 million or $.25 per diluted share gain in discontinued operations on
the Company’s consolidated income statement in 2007 related to the
resolution of certain tax matters associated with previously discontinued
operations.
|
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a company’s ability to
generate adequate amounts of cash to meet both current and future needs for
obligations as they mature and to provide for planned capital
expenditures. In order to have a complete picture of a company’s
liquidity, its balance sheet, sources and uses of cash flow and external factors
should be reviewed.
Material
Changes in the Consolidated Balance Sheets
CSX’s
balance sheet reflects its strong capital base and the impact of CSX’s balanced
approach in deploying its capital for the benefit of its shareholders, which
includes reinvestment in the Company’s existing infrastructure, investments in
the network, share repurchases and dividends.
Long-term
debt increased $1 billion to $7.5 billion driven by debt issuances of $1.35
billion in 2008. This increase was partially offset by a $464 million
decrease in current maturities of long-term debt due mainly to debt repayments
and convertible debt being converted into CSX common stock.
Total
shareholder’s equity decreased $637 million during 2008. This
decrease was mainly attributable to share repurchases that exceeded net earnings
as well as adjustments to other comprehensive income related to unrealized
pension losses and the payment of dividends. See Note 1, Nature of
Operations and Significant Accounting Policies.
Sources
and Uses of Cash
The
Company has multiple sources of cash. First, the Company generates
cash from operations. In 2008, the Company generated $2.9 billion of
cash from operating activities, which represented a $730 million increase from
the prior year due to higher cash flow generated from rail and intermodal
operations. Second, CSX has numerous financing sources including a
$1.25 billion five-year unsecured revolving credit facility that expires in May
2012. This facility can be increased by an additional $500 million to
$1.75 billion with the approval of the lending banks. See Note 8,
Debt and Credit Agreements for more information.
CSX also
has an effective shelf registration statement on file with the SEC that is
unlimited as to amount and may be used, subject to market conditions and CSX
Board authorization, to issue debt or equity securities at CSX’s discretion.
While CSX seeks to give itself flexibility with respect to cash requirements,
there can be no assurance that market conditions would permit CSX to sell such
debt securities on acceptable terms at any given time, or at all.
Among
other things, the Company uses cash for share repurchases and scheduled payments
of debt and leases. CSX also uses cash to pay dividends to
shareholders, as declared by the Board of Directors. CSX paid
dividends of $308 million in 2008, which was $77 million more than prior
year. The increase in 2008 was primarily due to CSX increasing
quarterly dividends to $0.22 per share. CSX also repurchased $1.6
billion of shares in 2008.
Net cash
used by investing activities during 2008 was $1.4 billion. This use
of funds was predominately driven by $1.7 billion of capital additions which are
further described below. This use of cash was slightly offset by
proceeds from sales of short-term investments.
| Fiscal Years | |||
|
Capital
Additions (Dollars in
millions)
|
2008
|
2007
|
2006
|
|
Track,
Bridges, Signals and Other Related
|
$933
|
$821
|
$714
|
|
Locomotives
and Freight Cars
|
454
|
458
|
373
|
|
Capacity
and Commercial Facilities
|
147
|
272
|
247
|
|
Hurricanes
Katrina / Gustav Asset Replacement
|
42
|
24
|
114
|
|
Other
|
164
|
198
|
191
|
|
Total
|
$1,740
|
$1,773
|
$1,639
|
Capital
spending and maintenance programs are and have been designed to assure the
ability to provide safe, efficient and reliable transportation
services. For 2009, CSX plans to spend $1.6 billion of capital of
which approximately 90% will be used to sustain the core infrastructure,
terminals, locomotives, freight cars and technology. The remaining
10% will be allocated to high return growth and productivity
investments.
CSX is
continually evaluating market and regulatory conditions that could affect the
Company’s ability to generate sufficient returns on capital investments.
CSX may revise this estimate as a result of changes in business conditions, tax
legislation or the enactment of new laws or regulations.
Liquidity
and Working Capital
Currently,
CSX is well positioned from a liquidity standpoint. The Company ended the
year with over $700 million of cash, cash equivalents and short-term
investments. CSX also has a $1.25 billion credit facility with a diverse
portfolio of banks that was not drawn on. Additionally, in January 2009,
the Company took advantage of an improvement in capital market conditions and
issued $500 million of new debt.
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 $13 million
and $180 million at December 2008 and 2007, respectively. The
favorable change was primarily due to increased earnings.
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. A working capital deficit is not unusual for CSX or
other companies in the industry and does not indicate a lack of liquidity. The
Company continues to maintain adequate current assets to satisfy current
liabilities and maturing obligations when they come due. Furthermore,
CSX has sufficient financial capacity, including the credit facility and shelf
registration statement, to manage its day-to-day cash requirements and any
anticipated obligations. The Company from time to time accesses the
credit markets for additional liquidity. Due to the current economic and credit
market environment, CSX may be unable to access capital due lack of market
demand or may experience higher interest costs.
Credit
Ratings
Credit
ratings reflect an independent agency’s judgment on the likelihood that a
borrower will repay a debt obligation at maturity. The ratings
reflect many considerations, such as the nature of the borrower’s industry and
its competitive position, the size of the company, its liquidity and access to
capital and the sensitivity of a company’s cash flows to changes in the
economy. The two largest rating agencies, Standard & Poor’s
(“S&P”) and Moody’s Investors Service (“Moody’s”), use alphanumeric codes to
designate their ratings. The highest quality rating for long-term
credit obligations is AAA+ and Aaa1 for S&P and Moody’s,
respectively. A security rating is not a recommendation to buy, sell
or hold securities and may be subject to revision or withdrawal at any time by
the assigning rating agency.
Long-term
ratings of BBB- and Baa3 or better by S&P and Moody’s, respectively, reflect
ratings on debt obligations that fall within a band of credit quality considered
to be “investment grade.” Currently, the long-term ratings for CSX’s
obligations fall within the investment grade band of credit
quality.
Following
CSX’s 2008 annual meeting, S&P issued a release noting its outlook for CSX
changed to negative as a result of the new Board composition; however, S&P
further noted it does not anticipate downgrading the rating unless CSX is no
longer committed to targeting an investment grade capital structure or adopts a
more aggressive financial policy. Moody’s outlook for CSX continues to be
stable.
If CSX's
credit ratings were to decline to lower levels, the Company could experience
significant increases in its interest cost for new debt. In addition,
the market’s demand, and thus the Company’s ability to readily issue new debt,
could become further influenced by the economic and credit market
environment.
SCHEDULE OF CONTRACTUAL OBLIGATIONS AND COMMERCIAL
COMMITMENTS
The
following tables set forth maturities of the Company's contractual obligations
and other commitments:
|
Type
of Obligation
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
Total
|
|
|
(Dollars
in Millions) (Unaudited)
|
||||||||
|
Contractual Obligations
|
||||||||
|
Long-term
Debt (See Note 8)
|
$319
|
$106
|
$605
|
$507
|
$782
|
$5,512
|
$7,831
|
|
|
Operating
Leases - Net (See Note 6)
|
77
|
65
|
55
|
52
|
35
|
170
|
454
|
|
|
Agreements
with Conrail (a)
|
13
|
9
|
4
|
3
|
3
|
6
|
38
|
|
|
Purchase
Obligations (See Note 6)
|
529
|
353
|
449
|
337
|
310
|
4,848
|
6,826
|
|
|
Total
Contractual Obligations
|
$938
|
$533
|
$1,113
|
$899
|
$1,130
|
$10,536
|
$15,149
|
|
|
Other Commitments
|
||||||||
|
Guarantees
(See Note 6)
|
$16
|
$16
|
$13
|
$12
|
$
-
|
$ -
|
$57
|
|
|
Other(b)
|
64
|
1
|
-
|
-
|
-
|
40
|
105
|
|
|
Total
Other Commitments
|
$80
|
$17
|
$13
|
$12
|
$
-
|
$40
|
$162
|
|
|
(a)
|
Agreements
with Conrail (for information about Conrail see Note 14, Related Party
Transactions) represent minimum future lease payments for freight cars and
locomotives and is included in total net lease commitments of $492 million
disclosed in Note 6, Commitments and
Contingencies.
|
|
(b)
|
Other commitments of $64 million
predominately consisted of bonds in force. These bonds are
surety bonds issued as a guarantee that CSX will perform its contractual
obligation.
|
OFF-BALANCE SHEET ARRANGEMENTS
For
detailed information about the Company’s guarantees, operating leases and
purchase obligations, see Note 6, Commitments and Contingencies.
There are no off-balance sheet
arrangements that are reasonably likely to have a material effect on the
Company’s financial condition, results of operations or 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
|
Casualty, Environmental and Legal Reserves
Casualty
Casualty
reserves represent accruals for personal injury and occupational injury
claims. Currently, no individual claim is expected to exceed the
Company’s self-insured retention amount. To the extent the value of
an individual claim exceeds the self-insured retention amount, the Company would
present the liability on a gross basis with a corresponding receivable for
insurance recoveries. Personal injury and occupational claims are
presented on a gross basis and in accordance with SFAS 5, Accounting for Contingencies
(“SFAS 5”). These reserves fluctuate with changes in estimates
provided by independent third parties and reviewed by management, and are offset
by the timing of payments. Most of the claims were related to CSXT
unless otherwise noted.
Defense
and processing costs, which historically have been insignificant and are
anticipated to be insignificant in the future, are not included in the recorded
liabilities. The Company is presently self-insured up to $25 million per injury
for personal injury and occupational-related claims.
Personal
Injury
Personal
injury reserves represent liabilities for employee work-related and third-party
injuries. Work-related injuries for CSXT employees are primarily
subject to FELA. In addition to FELA liabilities, employees of other
CSX subsidiaries are covered by various state workers’ compensation laws, the
Federal Longshore and Harbor Worker’s Compensation Program or the Maritime Jones
Act.
CSXT
retains an independent actuarial firm to assist management in assessing the
value of personal injury claims and cases. An analysis is performed
by the independent actuarial firm semi-annually and is reviewed by
management. The methodology used by the actuary includes a
development factor to reflect growth or reduction in the value of these personal
injury claims. It is based largely on CSXT’s historical claims and settlement
experience. Actual results may vary from estimates due to the type
and severity of the injury, costs of medical treatments and uncertainties in
litigation.
Based on
management’s review of the actuarial analyses performed by an independent
actuarial firm, the Company reduced personal injury reserves by $99 million
during 2007. This reduction is due to a trend of significant
decreases in the number and severity of work-related injuries for CSXT employees
since 2003. The analyses further indicated an absence of large
catastrophic claims since 2003, which also was determined to be a
trend. These reductions were included in materials, supplies and
other in the consolidated income statements.
Occupational
Occupational
claims arise from allegations of exposures 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.
Asbestos
The
Company is party to a number of occupational claims by employees alleging
exposure to asbestos in the workplace. The heaviest possible exposure
for employees was due to work conducted in and around steam locomotive engines
that were largely phased out beginning around the 1950s. However, other types of
exposures, including exposure from locomotive component parts and building
materials, continued until it was substantially eliminated by
1985. Additionally, the Company has retained liability for asbestos
claims filed against the previously owned international container shipping
business.
The
Company retains a third party specialist with extensive experience in performing
asbestos and other occupational studies to assist management in assessing the
value of the Company’s claims and cases. The analysis is performed by the
specialist semi-annually and is reviewed by management. The objective
of the analysis is to determine the number of estimated incurred but not
reported (“IBNR”) claims and the estimated average cost per claim to be received
over the next seven years. Seven years was determined by management
to be the time period in which probable claim filings and claim values could be
estimated with more certainty.
The
Company, with the assistance of the third party specialist, determines its
potentially exposed population and it is then able to derive the estimated
number of IBNR claims. The estimated average cost per claim is then determined
utilizing recent actual average cost per claim data and national industry data.
Key elements of the assessment include the following:
|
|
·
|
An
estimate is computed using a ratio of Company employee data to national
employment for select years during the period 1938-2001. The
Company uses railroad industry historical census data because it does not
have detailed employment records in order to compute the population of
potentially exposed employees.
|
|
|
·
|
The
projected incidence of disease is estimated based on epidemiological
studies using employees’ age and the duration and intensity of potential
exposure while employed. Epidemiology is the medical science
that deals with the incidence, distribution and control of diseases in a
population.
|
|
|
·
|
An estimate of the future
anticipated claims filing rate by type of disease (non-malignant, cancer
and mesothelioma) is computed using the Company’s average historical claim
filing rates for a three-year calibration period, excluding a surge in
claims originating in West Virginia in 2006. These claimants were
neither exposed to asbestos in West Virginia nor residents of the
state. 850 of these claims remain outstanding. The Company
believes these claims will not have merit as no medical
evidence has been provided to substantiate the claims and therefore the
Company has excluded them from the calibration period. Claim levels
have since returned to expected levels and management feels this
calibration period represents the best estimate of future filing
rates.
|
|
|
·
|
An
estimate of the future anticipated dismissal rate by type of claim is
computed using the Company’s historical average dismissal rates observed
during the current calibration period noted
above.
|
|
|
·
|
An
estimate of the future anticipated settlement by type of disease is
computed using the Company’s historical average of dollars paid per claim
for pending and future claims using the average settlement by type of
incident observed during the current calibration period noted
above.
|
From
these assumptions, the Company projects the incidence of each type of disease to
the estimated population to determine the total estimated number of employees
that could potentially assert a claim. Historical claim filing rates are applied
for each type of disease to the total number of employees that could potentially
assert a claim to determine the total number of anticipated claim filings by
disease type. Historical dismissal rates, which represented claims that were
closed without payment, were deducted to calculate the number of future claims
by disease type that would likely require payment by the Company. Finally, the
number of such claims was multiplied by the average settlement value to estimate
the Company’s future liability for IBNR asbestos claims.
The
estimated future filing rates and estimated average claim values are the most
sensitive assumptions for this reserve. A 1% increase or decrease in
either the forecasted number of IBNR claims or the average claim values would
result in an approximate $1 million increase or decrease in the liability
recorded for unasserted asbestos claims.
Other
Occupational
The
Company retains a third party specialist with extensive experience in performing
other occupational studies to assist management in assessing the value of the
Company’s claims and cases. The analysis is performed by the specialist
semi-annually and is reviewed by management. Similar to the asbestos
liability estimation process, the key elements of the assessment include the
following:
|
|
·
|
An
estimate of the potentially exposed population for other occupational
diseases is calculated by projecting active versus retired workforce from
2002 to 2010 using a growth rate projection for overall railroad
employment made by the Railroad Retirement Board in its June 2003
report.
|
|
|
·
|
An
estimate of the future anticipated claims filing rate by type of injury,
employee type, and active versus retired employee is computed using the
Company’s average historical claim filing rates for the calibration
periods management felt were representative of future filing
rates. For carpal tunnel and repetitive stress injuries, the
current calibration period is a 1-year average of claim
filings. Hearing loss uses a 3-year calibration period, and all
other diseases or injuries use a 2-year calibration period. An
estimate is made to forecast future claims by using the filing rates by
disease and the active and retired Company population each
year.
|
|
|
·
|
An
estimate of the future anticipated settlement by type of injury is
computed using the Company's historical average of dollars paid per claim
for pending and future claims using the average settlement by type of
injury observed during a period that management feels is representative of
future settlement amounts.
|
The estimated future filing rates and estimated average claim
values are the most sensitive assumptions for this reserve. A 1%
increase or decrease in either the forecasted number of IBNR claims or the
average claim values would not result in a material increase or decrease in the
liability recorded for unasserted other occupational claims.
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 244 environmentally impaired sites. Many of
those are, or may be, subject to remedial action under the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, or CERCLA, also
known as the Superfund Law, or similar state statutes. Most of these
proceedings arose from environmental conditions on properties used for ongoing
or discontinued railroad operations. However, a number of these
proceedings are based on allegations that the Company, or its predecessors, sent
hazardous substances to facilities owned or operated by others for treatment or
disposal. In addition, some of the Company’s land holdings were
leased to others for commercial or industrial uses that may have resulted in
releases of hazardous substances or other regulated materials onto the property
and could give rise to proceedings against the Company.
In any
such proceedings, the Company is subject to environmental clean-up and
enforcement actions under the Superfund Law, as well as similar state laws that
may impose joint and several liability for clean-up and enforcement costs on
current and former owners and operators of a site without regard to fault or the
legality of the original conduct. These costs could be
substantial.
In
accordance with Statement of Position 96-1, Environmental Remediation
Liabilities, the Company reviews its role with respect to each site
identified at least once a quarter, giving consideration to a number of factors
such as:
|
|
·
|
type
of clean-up required;
|
|
|
·
|
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);
|
|
|
·
|
extent
of the Company’s alleged connection (e.g., volume of waste sent to the
location and other relevant factors);
and
|
|
|
·
|
number,
connection and financial viability of other named and unnamed potentially
responsible parties at the
location.
|
Based on
the review process, the Company has recorded amounts to cover contingent
anticipated 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, 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.
Legal
In
accordance with SFAS 5, an accrual for a loss contingency is established if
information available prior to issuance of the financial statements indicates
that it is probable that an asset has been impaired or a liability
has been incurred at the date of the financial statements, and the amount of
loss can be reasonably estimated. If no accrual is made for a loss
contingency because one or both of these conditions are not met, or if an
exposure to loss exists in excess of the amount accrued, disclosure of the
contingency is made when there is at least a reasonable possibility that a loss
or an additional loss may have been incurred.
The
Company evaluates all exposures relating to legal liabilities at least quarterly
and adjusts reserves when appropriate under the guidance noted
above. The amount of a particular reserve may be influenced by
factors that include official rulings, newly discovered or developed evidence,
or changes in laws, regulations, and evidentiary standards.
Pension
and Post-retirement Medical Plan Accounting
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 in 2003 or thereafter,
benefits are determined based on a cash balance formula, which provides benefits
by utilizing interest and pay credits based upon age, service and
compensation. CSX made pension plan contributions of $102 million to
its qualified defined benefit pension plans in 2008.
In
addition to these plans, CSX sponsors a post-retirement medical plan and one
life insurance plan that provide benefits to full-time, salaried, management
employees hired prior to 2003, 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
accounting for these plans is subject to the guidance provided in SFAS 158,
Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132 (R) (“SFAS 158”), SFAS 87, Employers Accounting for Pensions
(“SFAS 87”), and SFAS 106, Employers' Accounting for
Postretirement Benefits Other than Pension (“SFAS 106”).
SFAS 87 requires that management make
certain assumptions relating to the following:
|
|
·
|
long-term
rate of return on plan assets;
|
|
|
·
|
discount
rates used to measure future obligations and interest
expense;
|
|
|
·
|
salary
scale inflation rates;
|
|
|
·
|
health
care cost trend rates; and
|
|
|
·
|
other
assumptions.
|
These
assumptions are determined as of the beginning of the year. As
permitted by SFAS 87, the Company previously used a plan measurement date of
September 30 to actuarially value its pension and post-retirement
plans. During 2008, CSX changed its measurement date to its fiscal
year end in accordance with SFAS 158. The effect of the change was a
$13 million after-tax reduction to retained earnings. 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 Company reviews the long-term rate of return, discount,
salary scale inflation and health care cost trend rates on an annual basis and
makes modifications to the assumptions based on current rates and trends as
appropriate.
Long-term
Rate of Return on Plan Assets
The
expected long-term average rate of return on plan assets reflects the average
rate of earnings expected on the funds invested, or to be invested, to provide
for benefits included in the projected benefit obligation. In estimating that
rate, the Company gives appropriate consideration to the returns being earned by
the plan assets in the funds and the rates of return expected to be available
for reinvestment.
The
Company's expected long-term average rate of return on assets considers the
current and projected asset mix of the funds. Management balances
market expectations obtained from various investment managers and economists
with both market and actual plan historical returns to develop a reasonable
estimate of the expected long-term rate of return on assets. As this
assumption is long-term, it is adjusted less frequently than other assumptions
used in pension accounting. The long-term rate of return on plan
assets used by the Company to value its 2008 pension obligation was
8.5%.
Discount
Rates
Discount
rates affect the amount of liability recorded and the interest expense component
of pension and post-retirement expense. Discount rates reflect the
rates at which pension and other post-retirement benefits could be effectively
settled, or in other words, how much it would cost the Company to buy enough
high quality bonds to generate cash flow equal to the Company’s expected future
benefit payments. The Company determines the discount rate based on a
hypothetical portfolio of high quality bonds with cash flows matching the plans’
expected benefit payments.
The discount rate used by the Company
to value its 2008 pension and post-retirement obligations is
6.5%. Each year these discount rates are reevaluated and adjusted to
reflect the best estimate of the current effective settlement
rates. If interest rates generally decline or rise, the assumed
discount rates will change.
Salary Scale Inflation
Rates
Salary
scale inflation rates are based on current trends and historical data
accumulated by the Company. The Company reviews recent wage increases
and management incentive compensation payments over the past five years in its
assessment of salary scale inflation rates. The Company used a salary
scale rate of 3.8% to value its 2008 pension obligation.
Health
Care Cost Trend Rates
Health
care cost trend rates are based on recent plan experience and industry
trends. The Company uses actuarial data to substantiate the inflation
assumption for health care costs, representing increases in total plan costs
(which include claims and administrative fee cost components). The
current assumed health care cost trend rate is 9.5% for Medicare-eligible
participants and 8.5% for non-Medicare-eligible participants and is expected to
decrease gradually until reaching 5% in 2017, based upon current actuarial
projections.
Other
Assumptions
The
calculations made by the actuaries also include assumptions relating to
mortality rates, turnover and retirement age. These assumptions are
based upon historical data and are selected by management.
2009
Estimated Pension and Post-retirement Expense
Net
periodic pension and post-retirement benefits expense for 2009 is expected to be
approximately $44 million and $31 million, respectively, compared to $33 million
and $31 million, respectively in 2008.
The following sensitivity analysis
illustrates the effect of changes in certain assumptions like discount rates,
salaries and health care costs on the 2009 estimated pension and post-retirement
expense:
|
(Dollars
in Millions)
|
Pension
|
OPEB
|
|
|
Discount
Rate 0.25% change
|
$4
|
$1
|
|
|
Salary
Inflation 0.25% change
|
$1
|
$
-
|
|
|
Health
Care Cost 1% change
|
N/A
|
$1
|
Depreciation
Policies for Assets Under the Group-Life Method
CSXT
accounts for its rail assets, including main-line track, locomotives and freight
cars, using the group-life method. The group-life method pools
similar assets by type and then depreciates each group as a
whole. Under the group-life method, the service lives for each group
of rail assets are determined by completing periodic life studies and applying
management's assumptions concerning the service lives of its
properties. These life studies are conducted by a third party expert,
analyzed by the Company's management and approved by the STB. Life
studies for equipment assets are required every three years, whereas road and
track life studies are required every six years by the STB.
Changes
in asset lives due to the results of the life studies could significantly impact
future periods’ depreciation expense, and thus, the Company's results of
operations. Factors taken into account during the life study
include:
|
|
·
|
statistical
analysis of historical retirements for each group of
property;
|
|
|
·
|
evaluation
of current operations;
|
|
|
·
|
evaluation
of technological advances and maintenance
schedules;
|
|
|
·
|
previous
assessment of the condition of the assets and outlook for their continued
use;
|
|
|
·
|
expected
net salvage to be received upon retirement;
and
|
|
|
·
|
comparison
of assets to the same asset groups with other
companies.
|
The life
studies may also indicate that the recorded amount of accumulated depreciation
is deficient (or in excess) of the appropriate amount indicated by the study.
Any such deficiency (or excess) is amortized as a component of depreciation
expense over the remaining useful life of the asset group until the next
required life study.
Recent
experience with life studies has resulted in depreciation rate changes, which
did not significantly affect the Company’s annual depreciation
expense. In 2007, CSXT initiated life studies for its road, equipment
and track assets that concluded in 2008, resulting in a reduction in
depreciation expense for equipment and road assets and an increase in
depreciation expense for track assets.
Assets
depreciated under the group-life method comprise 93% of CSXT's total fixed
assets of $23 billion on a net basis at December 2008. The Company’s
depreciation expense for 2008 amounted to $904 million. A 1% change
in the average life of all group-life assets would result in a $9 million change
to the Company’s annual depreciation expense.
Income
Taxes
In 2006,
the Financial Accounting Standards Board (“FASB”) issued Interpretation 48,
Accounting for Uncertainty in
Income Taxes (“FIN 48”), which became effective for CSX beginning in
2007. FIN 48 addressed the determination of how tax benefits claimed
or expected to be claimed on a tax return should be recorded in the financial
statements. Under FIN 48, the Company must recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities based on the
technical merits of the position. The tax benefits recognized in the
financial statements from such a position are measured based on the largest
benefit that has a greater than fifty percent likelihood of being realized upon
ultimate resolution. The Company’s reassessment of its tax positions
in accordance with FIN 48 did not have a material impact on the Company’s
financial condition, results of operations or liquidity.
CSX files a consolidated federal income
tax return, which includes its principal domestic
subsidiaries. Examinations of the federal income tax returns of CSX
have been completed through 2003 and for 2007. Federal income tax
returns for 2004 through 2006 currently are under appeal. Management
believes adequate provision has been made for any adjustments that might be
assessed. While the final outcome of these matters cannot be
predicted with certainty, it is the opinion of CSX management that none of these
items will have a material adverse effect on the financial condition, results of
operations or liquidity of CSX. An unexpected adverse resolution of
one or more of these items, however, could have a material adverse effect on the
results of operations in a particular fiscal quarter or fiscal
year. Also, the Company is party to a number of legal and
administrative proceedings, the resolution of which could result in gain
realization in amounts that could be material to results of operations in a
particular fiscal quarter or fiscal year.
New
Accounting Pronouncements and Change in Accounting Policy
See Note
1, Nature of Operations and Significant Accounting Policies under the caption,
“New Accounting Pronouncements and Changes in Accounting Policy.”
Item
7A. Quantitative and Qualitative Disclosures about Market
Risk
CSX does
not hold or issue derivative financial instruments for trading
purposes. Historically, the Company has used derivative financial
instruments to address market risk exposure to fluctuations in interest rates
and the risk of volatility in its fuel costs, but as of December 2008, the
Company did not have a significant position in derivative financial
instruments.
At
December 2008, CSX had $85 million of outstanding floating rate debt obligations
outstanding. A 1% fluctuation in interest rates on these notes would
cause a $1 million change in interest expense.
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|||||||||||
|
Page
|
|||||||||||
|
65
|
|||||||||||
|
CSX
Corporation
|
|||||||||||
|
Consolidated
Financial Statements and Notes to Consolidated
Financial
|
|||||||||||
|
Statements
Herewith:
|
|||||||||||
|
66
|
|||||||||||
|
December
26, 2008
|
|||||||||||
|
December
28, 2007
|
|||||||||||
|
December
29, 2006
|
|||||||||||
|
67
|
|||||||||||
|
December
26, 2008
|
|||||||||||
|
December
28, 2007
|
|||||||||||
|
68
|
|||||||||||
|
December
26, 2008
|
|||||||||||
|
December
28, 2007
|
|||||||||||
|
December
29, 2006
|
|||||||||||
|
69
|
|||||||||||
|
December
26, 2008
|
|||||||||||
|
December
28, 2007
|
|||||||||||
|
December
29, 2006
|
|||||||||||
|
Notes to Consolidated Financial
Statements
|
70
|
||||||||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Shareholders and Board of Directors of CSX Corporation
We
have audited the accompanying consolidated balance sheets of CSX Corporation and
subsidiaries as of December 26, 2008 and December 28, 2007, and the related
consolidated statements of income, cash flows, and changes in shareholders'
equity for each of the three fiscal years in the period ended December 26, 2008.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of CSX Corporation and
subsidiaries at December 26, 2008 and December 28, 2007, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended December 26, 2008, in conformity with U.S. generally
accepted accounting principles.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), CSX Corporation’s internal control over
financial reporting as of December 26, 2008, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 17, 2009
expressed an unqualified opinion thereon.
/s/ Ernst
& Young LLP
Independent
Certified Public Accountants
Jacksonville,
Florida
February
17, 2009
(Dollars
in Millions, Except Per Share Amounts)
|
Fiscal
Years
|
||||||
|
2008
|
2007
|
2006
|
||||
|
Operating
Revenue
|
$11,255
|
$10,030
|
$9,566
|
|||
|
Operating
Expense
|
||||||
|
Labor
and Fringe
|
2,955
|
2,986
|
2,930
|
|||
|
Materials,
Supplies and Other
|
2,133
|
1,925
|
1,840
|
|||
|
Fuel
|
1,817
|
1,312
|
1,209
|
|||
|
Depreciation
|
904
|
883
|
857
|
|||
|
Equipment
and Other Rents
|
425
|
451
|
507
|
|||
|
Inland
Transportation
|
253
|
240
|
242
|
|||
|
Gain
on Insurance recoveries
|
-
|
(27)
|
(168)
|
|||
|
Total
Operating Expense
|
8,487
|
7,770
|
7,417
|
|||
|
Operating
Income
|
2,768
|
2,260
|
2,149
|
|||
|
Other
Income and Expense
|
||||||
|
Other
Income (Expense) - Net (Note 9)
|
(103)
|
89
|
84
|
|||
|
Interest
Expense
|
(519)
|
(417)
|
(392)
|
|||
|
Earnings
From Continuing Operations before Income Taxes
|
2,146
|
1,932
|
1,841
|
|||
|
Income
Tax Expense (Note 12)
|
(781)
|
(706)
|
(531)
|
|||
|
Earnings
From Continuing Operations
|
1,365
|
1,226
|
1,310
|
|||
|
Discontinued
Operations (Note 15)
|
-
|
110
|
-
|
|||
|
Net
Earnings
|
$1,365
|
$1,336
|
$1,310
|
|||
|
Per
Common Share (Note 2)
|
||||||
|
Basic
Earnings Per Share
|
||||||
|
From
Continuing Operations
|
$3.41
|
$2.85
|
$2.98
|
|||
|
Discontinued
Operations
|
-
|
0.26
|
-
|
|||
|
Net
Earnings
|
$3.41
|
$3.11
|
$2.98
|
|||
|
Earnings
Per Common Share, Assuming Dilution
|
||||||
|
From
Continuing Operations
|
$3.34
|
$2.74
|
$2.82
|
|||
|
Discontinued
Operations
|
-
|
0.25
|
-
|
|||
|
Net
Earnings
|
$3.34
|
$2.99
|
$2.82
|
|||
|
Average
Common Shares Outstanding (Thousands)
|
400,683
|
430,270
|
440,084
|
|||
|
Average
Common Shares Outstanding,
|
408,602
|
448,280
|
465,934
|
|||
|
Assuming
Dilution (Thousands)
|
||||||
|
Cash
Dividends Paid Per Common Share
|
$0.77
|
$0.54
|
$0.33
|
|||
See accompanying Notes to Consolidated
Financial Statements
CONSOLIDATED
BALANCE SHEETS
(Dollars
in millions)
|
December
26,
|
December
28,
|
|||||||
|
2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and Cash Equivalents (Note 1)
|
$669
|
$368
|
||||||
|
Short-term
Investments
|
76
|
346
|
||||||
|
Accounts
Receivable, net of allowance for doubtful
|
||||||||
|
accounts
of $70 and $74, respectively
|
1,107
|
1,174
|
||||||
|
Materials
and Supplies
|
217
|
240
|
||||||
|
Deferred
Income Taxes
|
203
|
254
|
||||||
|
Other
Current Assets
|
119
|
109
|
||||||
|
Total
Current Assets
|
2,391
|
2,491
|
||||||
|
Properties
|
30,208
|
28,999
|
||||||
|
Accumulated
Depreciation
|
(7,520)
|
(7,219)
|
||||||
|
Properties
- Net (Note 10)
|
22,688
|
21,780
|
||||||
|
Investment
in Conrail (Note 14)
|
609
|
639
|
||||||
|
Affiliates
and Other Companies
|
406
|
365
|
||||||
|
Other
Long-term Assets (Note 11)
|
194
|
259
|
||||||
|
Total
Assets
|
$26,288
|
$25,534
|
||||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
Payable
|
$973
|
$976
|
||||||
|
Labor
and Fringe Benefits Payable
|
465
|
461
|
||||||
|
Casualty,
Environmental and Other Reserves (Note 5)
|
236
|
247
|
||||||
|
Current
Maturities of Long-term Debt (Note 8)
|
319
|
783
|
||||||
|
Short-term
Debt
|
1
|
4
|
||||||
|
Income
and Other Taxes Payable
|
125
|
113
|
||||||
|
Other
Current Liabilities
|
285
|
87
|
||||||
|
Total
Current Liabilities
|
2,404
|
2,671
|
||||||
|
Casualty,
Environmental and Other Reserves (Note 5)
|
643
|
624
|
||||||
|
Long-term
Debt (Note 8)
|
7,512
|
6,470
|
||||||
|
Deferred
Income Taxes
|
6,235
|
6,096
|
||||||
|
Other
Long-term Liabilities (Note 11)
|
1,446
|
988
|
||||||
|
Total
Liabilities
|
18,240
|
16,849
|
||||||
|
Shareholders'
Equity:
|
||||||||
|
Common
Stock, $1 Par Value (Note 3)
|
391
|
408
|
||||||
|
Other
Capital
|
-
|
37
|
||||||
|
Retained
Earnings (Note 1)
|
8,398
|
8,565
|
||||||
|
Accumulated
Other Comprehensive Loss
|
(741)
|
(325)
|
||||||
|
Total
Shareholders' Equity
|
8,048
|
8,685
|
||||||
|
Total
Liabilities and Shareholders' Equity
|
$26,288
|
$25,534
|
||||||
See
accompanying Notes to Consolidated Financial Statements
CONSOLIDATED
CASH FLOW STATEMENTS
(Dollars
in Millions)
|
Fiscal
Years
|
|||||
|
2008
|
2007
|
2006
|
|||
|
OPERATING
ACTIVITIES
|
|||||
|
Net
Earnings
|
$1,365
|
$1,336
|
$1,310
|
||
|
Adjustments
to Reconcile Net Earnings to Net Cash Provided
|
|||||
|
by
Operating Activities:
|
|||||
|
Depreciation
|
918
|
890
|
867
|
||
|
Deferred
Income Taxes
|
435
|
272
|
42
|
||
|
Non-cash
Impairment Loss
|
166
|
-
|
-
|
||
|
Non-cash
Discontinued Operations (Note 15)
|
-
|
(110)
|
-
|
||
|
Net
Gain on Conrail spin-off - after tax
|
-
|
-
|
(26)
|
||
|
Contributions
to Qualified Pension Plans (Note 7)
|
(102)
|
(266)
|
(28)
|
||
|
Other
Operating Activities
|
65
|
(91)
|
(14)
|
||
|
Changes
in Operating Assets and Liabilities:
|
|||||
|
Accounts
Receivable
|
74
|
(50)
|
(33)
|
||
|
Other
Current Assets
|
37
|
(41)
|
96
|
||
|
Accounts
Payable
|
(3)
|
48
|
51
|
||
|
Income
and Other Taxes Payable
|
(46)
|
234
|
(103)
|
||
|
Other
Current Liabilities
|
5
|
(38)
|
(104)
|
||
|
Net
Cash Provided by Operating Activities
|
2,914
|
2,184
|
2,058
|
||
|
INVESTING
ACTIVITIES
|
|||||
|
Property
Additions
|
(1,740)
|
(1,773)
|
(1,639)
|
||
|
Purchases
of Short-term Investments
|
(25)
|
(2,338)
|
(1,412)
|
||
|
Proceeds
from Sales of Short-term Investments
|
280
|
2,459
|
1,290
|
||
|
Other
Investing Activities
|
36
|
(41)
|
151
|
||
|
Net
Cash Used in Investing Activities
|
(1,449)
|
(1,693)
|
(1,610)
|
||
|
FINANCING
ACTIVITIES
|
|||||
|
Short-term
Debt - Net
|
(3)
|
(6)
|
7
|
||
|
Long-term
Debt Issued (Note 8)
|
1,351
|
2,381
|
471
|
||
|
Long-term
Debt Repaid (Note 8)
|
(642)
|
(785)
|
(546)
|
||
|
Dividends
Paid
|
(308)
|
(231)
|
(145)
|
||
|
Stock
Options Exercised (Note 4)
|
83
|
153
|
319
|
||
|
Shares
Repurchased (Note 1)
|
(1,570)
|
(2,174)
|
(465)
|
||
|
Other
Financing Activities
|
(75)
|
78
|
63
|
||
|
Net
Cash Used in Financing Activities
|
(1,164)
|
(584)
|
(296)
|
||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
301
|
(93)
|
152
|
||
|
CASH
AND CASH EQUIVALENTS
|
|||||
|
Cash
and Cash Equivalents at Beginning of Period
|
368
|
461
|
309
|
||
|
Cash
and Cash Equivalents at End of Period
|
$669
|
$368
|
$461
|
||
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|||||
|
Interest
Paid - Net of Amounts Capitalized
|
$509
|
$411
|
$387
|
||
|
Income
Taxes Paid
|
$276
|
$235
|
$531
|
||
|
Seller
Financed Assets
|
$310
|
$ 52
|
$ -
|
||
See accompanying Notes to
Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars
in Millions)
|
Accumulated
Other
|
|||||||||
|
Common
|
Comprehensive
Income (Loss)
|
||||||||
|
Shares
|
Pension
|
||||||||
|
Outstanding
|
Common
|
Other
|
Retained
|
and
OPEB
|
Fuel
|
||||
|
(Thousands)
|
Stock
|
Capital
|
Earnings
|
Adjustments(a)
|
Hedge(b)
|
Other
|
Total
|
||
|
|
|||||||||
|
Balance
December 30, 2005
|
436,406
|
$436
|
$1,533
|
$6,262
|
$(307)
|
$30
|
$
-
|
$7,954
|
|
|
Comprehensive
Earnings:
|
|||||||||
|
Net
Earnings
|
-
|
-
|
-
|
1,310
|
-
|
-
|
-
|
1,310
|
|
|
Other
Comprehensive Income
(Loss)
|
-
|
-
|
-
|
-
|
(2)
|
(30)
|
-
|
(32)
|
|
|
Comprehensive
Earnings
|
1,278
|
||||||||
|
Adjustment
for Initial Adoption
|
|||||||||
|
of
SFAS 158, net of tax(c)
|
-
|
-
|
-
|
-
|
(83)
|
-
|
-
|
(83)
|
|
|
Dividends
|
-
|
-
|
-
|
(145)
|
-
|
-
|
-
|
(145)
|
|
|
Share
Repurchases
|
(14,533)
|
(14)
|
(451)
|
-
|
-
|
-
|
-
|
(465)
|
|
|
Stock
Option Exercises and Other
|
15,891
|
16
|
387
|
-
|
-
|
-
|
-
|
403
|
|
|
|
|||||||||
|
Balance
December 29, 2006
|
437,764
|
438
|
1,469
|
7,427
|
(392)
|
-
|
-
|
8,942
|
|
|
Comprehensive
Earnings:
|
|||||||||
|
Net
Earnings
|
-
|
-
|
-
|
1,336
|
-
|
-
|
-
|
1,336
|
|
|
Other
Comprehensive Income
(Loss)
|
-
|
-
|
-
|
-
|
63
|
-
|
4
|
67
|
|
|
Comprehensive
Earnings
|
1,403
|
||||||||
|
Adjustment
for Initial Adoption
|
|||||||||
|
of
FIN 48(d)
|
-
|
-
|
-
|
33
|
-
|
-
|
-
|
33
|
|
|
Dividends
|
-
|
-
|
-
|
(231)
|
-
|
-
|
-
|
(231)
|
|
|
Share
Repurchases (e)
|
(50,917)
|
(51)
|
(2,123)
|
-
|
-
|
-
|
-
|
(2,174)
|
|
|
Bond
Conversions(f)
|
13,296
|
13
|
339
|
-
|
-
|
-
|
-
|
352
|
|
|
Subsidiary
Equity Restructuring
|
-
|
-
|
72
|
-
|
-
|
-
|
-
|
72
|
|
|
Stock
Option Exercises and Other
|
7,721
|
8
|
280
|
-
|
-
|
-
|
-
|
288
|
|
|
Balance
December 29, 2007
|
407,864
|
408
|
37
|
8,565
|
(329)
|
-
|
4
|
8,685
|
|
|
Comprehensive
Earnings:
|
|||||||||
|
Net
Earnings
|
-
|
-
|
-
|
1,365
|
-
|
-
|
-
|
1,365
|
|
|
Other
Comprehensive Income
(Loss)
|
-
|
-
|
-
|
-
|
(411)
|
-
|
(5)
|
(416)
|
|
|
Comprehensive
Earnings
|
949
|
||||||||
|
Dividends
|
-
|
-
|
-
|
(308)
|
-
|
-
|
-
|
(308)
|
|
|
Share
Repurchases (e)
|
(28,486)
|
(28)
|
(1,542)
|
-
|
-
|
-
|
-
|
(1,570)
|
|
|
Other
Capital Reclass (g)
|
-
|
-
|
1,211
|
(1,211)
|
-
|
-
|
-
|
-
|
|
|
Bond
Conversions (f)
|
5,042
|
5
|
116
|
-
|
-
|
-
|
-
|
121
|
|
|
Adjustment
for SFAS 158, net of tax (g)
|
(13)
|
(13)
|
|||||||
|
Stock
Option Exercises and Other
|
6,106
|
6
|
178
|
-
|
-
|
-
|
-
|
184
|
|
|
Balance
December 26, 2008
|
390,526
|
$391
|
$
-
|
$8,398
|
$(740)
|
$
-
|
$(1)
|
$8,048
|
|
|
(a)
|
Pension
and Other Postretirement Benefits balances are net of taxes of $197
million, $166 million and $375 million for 2006, 2007 and 2008,
respectively.
|
|
(b)
|
Fuel
hedge activity is net of taxes of $21 million for
2006.
|
|
(c)
|
See
Note 1, Nature of Operations and Significant Accounting Policies under
caption New Accounting Pronouncements and Changes in Accounting
Policy.
|
|
(d)
|
See
Note 12, Income Taxes.
|
|
(e)
|
See
Note 1, Nature of Operations and Significant Accounting Policies under
caption Other Items – Share
Repurchases.
|
|
(f)
|
See
Note 2, Earnings Per Share and Note 9, Debt and Credit
Agreements.
|
|
(g)
|
See
Note 1, Nature of Operations and Significant Accounting Policies under
caption Other Items - Retained
Earnings.
|
See
accompanying Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. Nature of Operations and Significant Accounting
Policies
Nature
of Operations
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’s rail and intermodal businesses provide
rail-based transportation services including traditional rail service and the
transport of intermodal containers and trailers.
Rail
CSX’s
principal operating company, CSX Transportation, Inc. (“CSXT”), provides a
crucial link to the transportation supply chain through its approximately 21,000
route mile rail network, which serves major population centers in 23 states east
of the Mississippi River, the District of Columbia and the Canadian provinces of
Ontario and Quebec. It serves 70 ocean, river and lake ports along the
Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St.
Lawrence Seaway. CSXT also serves thousands of production and
distribution facilities through track connections to more than 230 short-line
and regional railroads.
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.
Intermodal
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. Containers and trailers are loaded and unloaded from
trains, and trucks provide the link between intermodal terminals and the
customer.
Lines
of Business
Together,
the rail and intermodal segments generated $11.3 billion of revenue during 2008
and served four primary lines of business, which are as follows:
NOTE
1. Nature of Operations and Significant Accounting Policies,
continued
|
|
·
|
The
merchandise business is the most diverse market with nearly 2.5 million
carloads per year of aggregates, which includes crushed stone, sand and
gravel, metal, phosphate, fertilizer, food, consumer, agricultural, paper
and chemical products. The merchandise business generated
approximately 49% of the Company’s revenue in 2008 and 37% of
volume.
|
|
|
·
|
Coal,
which delivered approximately 1.9 million carloads of coal, coke and iron
ore to electricity generating power plants, ocean, river and lake piers
and terminals, steel makers and industrial plants, accounted for
approximately 29% of the Company’s revenue in 2008 and 28% of
volume. The Company transports almost one-third of every ton of
coal used for generating electricity in the areas it
serves.
|
|
|
·
|
Automotive,
which delivers finished vehicles and auto parts, generated approximately
7% of the Company’s revenue and 5% of the Company’s volume in
2008. The Company delivers approximately 30% of North America’s
light vehicles, serving both traditional manufacturers and the increasing
number of global
manufacturers.
|
|
|
·
|
Intermodal
offers a competitive cost advantage over long-haul trucking by combining
the superior economics of rail transportation with the short-haul
flexibility of trucks. Through its network of more than 50
terminals, Intermodal serves all major markets east of the Mississippi and
transports mainly manufactured consumer goods in containers, providing
customers with truck-like service for longer shipments. For
2008, Intermodal accounted for approximately 13% of the Company’s total
revenue and 30% of volume.
|
Other revenue, which includes revenue
from regional railroads, demurrage, switching and other incidental charges,
accounted for 2% of the Company’s total 2008 revenue. Revenue from
regional railroads includes shipments by railroads that the Company does not
directly operate. Demurrage represents charges assessed by railroads
when shippers or receivers of freight hold railcars beyond a specified period of
time. Switching revenue is generated when CSXT switches cars between
trains for a customer or another railroad.
Other
Businesses
CSX’s
other holdings include CSX Real Property, Inc., a subsidiary responsible for the
Company’s real estate sales, leasing, acquisition and management and development
activities, and the Greenbrier Hotel Corporation, formerly known as CSX Hotels,
Inc., a resort doing business as The Greenbrier. These items are
classified in other income because they are not considered by the Company to be
operating activities and results may fluctuate with the timing of real estate
sales and resort seasonality. See Note 9, Other Income, for more
information related to the Company’s investment in The Greenbrier
resort.
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 present fairly the
financial position of CSX and its subsidiaries at December 2008 and December
2007, and the Consolidated Statements of Income, Cash Flows and Changes in
Shareholders’ Equity for fiscal years 2008, 2007 and 2006.
Beginning
in 2008, certain items have been reclassified within the income
statement. These reclassifications include reclassifying all items
previously reported as other operating income and certain items within other
income into the Rail segment. As a result of this change, the
Company’s consolidated operating income and Surface Transportation operating
income is now the same; therefore, the Company no longer reports separate
Surface transportation results. The Rail segment was not materially
impacted by these reclassifications.
Additionally,
beginning in 2008, the Company reclassified all non-locomotive fuel related
costs previously included in materials, supplies and other into fuel on the
Company’s consolidated income statement. These amounts were $150
million and $102 million for the years ended 2008 and 2007,
respectively. Certain other prior-year data have been reclassified to
conform to the 2008 presentation.
Fiscal
Year
CSX
follows a 52/53 week fiscal reporting calendar. This fiscal calendar
allows every quarter to consistently end on a Friday and to be of equal duration
(13 weeks). However, to maintain this type of reporting calendar,
every sixth or seventh year (depending on the Gregorian calendar and when leap
year falls), an extra week will be included in one quarter (a 14-week fiscal
quarter) and, therefore, that full fiscal year will have 53 weeks.
Fiscal years 2008, 2007 and 2006 each
consisted of 52 weeks ending on December 26, 2008, December 28, 2007 and
December 29, 2006, respectively. Except as otherwise specified,
references to full year indicate CSX’s fiscal periods ended on these
dates. The next 53 week fiscal year will be 2010.
Principles
of Consolidation
The
consolidated financial statements include results of operations of CSX and its
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Most investments in companies that were not
majority-owned were carried at cost (if less than 20% owned and the Company has
no significant influence) or equity (if the Company has significant
influence).
NOTE
1. Nature of Operations and Significant Accounting Policies,
continued
Cash,
Cash Equivalents and Short-term Investments
On a
daily basis, cash in excess of current operating requirements is invested in
various highly liquid investments having a typical maturity date of three months
or less at the date of acquisition. These investments were carried at cost,
which approximated market value, and were classified as cash equivalents.
Investments in instruments with maturities greater than three months but less
than one year were classified as short-term investments.
CSX holds $15 million and $270 million
of auction rate securities and classifies these investments as available for
sale as of December 2008 and 2007, respectively. Accordingly, these
investments were included in current assets on the Consolidated Balance
Sheets. On the Consolidated Cash Flow Statements, purchases and sales
of these assets were classified within Investing Activities.
Allowance
for Doubtful Accounts
The Company maintains an allowance for
doubtful accounts for the estimated probable losses on uncollectible accounts
and other receivables. The allowance is based upon the credit worthiness of
customers, historical experience, the age of the receivable and current market
and economic conditions, as well as any known trends or uncertainties related to
customer billing and account collectibility. Uncollectible amounts were charged
against the allowance account. The allowance for doubtful accounts is netted
against accounts receivable.
Materials
and Supplies
Materials and supplies in the
Consolidated Balance Sheets were carried at average costs and consist primarily
of fuel and parts used in the repair and maintenance of CSXT’s freight car and
locomotive fleets, equipment and track structure.
NOTE
1. Nature of Operations and Significant Accounting Policies,
continued
Properties
All
properties were stated at historical cost less an allowance for accumulated
depreciation. Rail assets, including main-line track, locomotives and freight
cars, were depreciated using the group-life method. Under this
method, CSXT pools similar assets by road and equipment type and then
depreciates each group as a whole. Regulations enforced by the
Surface Transportation Board (“STB”) of the U.S. Department of Transportation
require periodic formal studies of ultimate service lives (“life studies”) for
all railroad assets. Factors taken into account during a life study
include:
|
|
·
|
statistical
analysis of historical retirements for each group of
property;
|
|
|
·
|
evaluation
of current operations;
|
|
|
·
|
evaluation
of technological advances and maintenance
schedules;
|
|
|
·
|
previous
assessment of the condition of the assets and outlook for their continued
use;
|
|
|
·
|
expected
net salvage to be received upon retirement;
and
|
|
|
·
|
comparison
of assets to the same asset groups with other
companies.
|
The
results of the life study process determine the service lives for each asset
group under the group-life method. These studies are conducted by a third party
expert and are analyzed by the Company's management. Resulting changes in
service life estimates are subject to review and approval by the STB. Road
assets, including main-line track, have estimated service lives ranging from 6
years for system roadway machinery to 80 years for grading. Equipment assets,
including locomotives and freight cars, have estimated service lives ranging
from 6 years for motor vehicles to 35 years for work equipment.
Changes in asset lives due to the
results of the life studies are applied at the completion of the life study and
continue until the next required life study. The life studies may also indicate
that the recorded amount of accumulated depreciation is deficient (or in excess)
of the amount indicated by the study. Any such deficiency (or excess) amount is
amortized as a component of depreciation expense over the remaining useful life
of the asset group until the next required life study.
The
majority of non-rail property is depreciated using the straight-line method on a
per asset basis. The depreciable lives of non-rail property are
periodically reviewed by the Company and any changes are applied on a
prospective basis. Amortization expense recorded under capital leases
is included in depreciation expense on the Consolidated Income
Statements.
NOTE
1. Nature of Operations and Significant Accounting Policies,
continued
For
retirements or disposals of depreciable rail assets that occur in the ordinary
course of business, the asset cost (net of salvage value or sales proceeds) is
charged to accumulated depreciation and no gain or loss is recognized. For
retirements or disposals of non-rail depreciable assets, infrequent disposal of
rail assets outside the normal course of business and all dispositions of land,
the resulting gains or losses are recognized at the time of disposal.
Expenditures that significantly increase asset values or extend useful lives are
capitalized. Repair and maintenance expenditures are charged to operating
expense when the work is performed.
Properties and other long-lived assets
are reviewed for impairment whenever events or business conditions indicate the
carrying amount of such assets may not be fully recoverable. Initial assessments
of recoverability are based on estimates of undiscounted future net cash flows
associated with an asset or a group of assets in accordance with Statement of
Financial Accounting Standards (“SFAS”) 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Where impairment is indicated,
the assets are evaluated and their carrying amount is reduced to fair value
based on discounted net cash flows or other estimates of fair
value.
Revenue
and Expense Recognition
The Company recognizes freight revenue
using Free-On-Board (“FOB”) Origin pursuant to Emerging Issues Task Force
(“EITF”) 91-9, Revenue and
Expense Recognition for Freight Services in Process. The
Company uses method (5) in the EITF, which provides for the allocation of
revenue between reporting periods based on relative transit time in each
reporting period. Expenses are recognized as incurred.
NOTE
1. Nature of Operations and Significant Accounting Policies,
continued
The
certain key estimates included in the recognition and measurement of revenue and
related accounts receivable under the policies described above are as
follows:
|
|
·
|
revenue
associated with shipments in transit, which are based on historical
freight car movement data as well as average cycle times to move
commodities from their origin to their final destination or
interchange;
|
|
|
·
|
future
adjustments to revenue or accounts receivable for billing corrections,
billing discounts, bad debts and allowances for doubtful
accounts;
|
|
|
·
|
future
adjustments to revenue for overcharge claims filed by customers, which are
based on historical cash paid to customers for rate overcharges as a
percentage of total billing; and
|
|
|
·
|
incentive-based
refunds to customers, which are primarily based on customers achieving
certain volume thresholds and are recorded as a reduction to revenue on
the basis of management’s best estimate of the projected
liability. This estimate is based on historical activity,
current volume levels and a forecast of future
volume.
|
The Company regularly updates the
estimates described above based on historical experience. All other
revenue, such as demurrage, switching and other incidental charges are recorded
upon completion of the service.
Comprehensive
Earnings
CSX
reports comprehensive earnings (loss) in accordance with SFAS 130, Reporting Comprehensive
Income, 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 (i.e. issuance of equity
securities and dividends). Generally, for CSX, that calculation is
net earnings plus or minus adjustments for pension and other post-retirement
liabilities. Total comprehensive earnings represent the activity for
a period and were $949 million and $1.4 billion for 2008 and 2007,
respectively.
While
total comprehensive earnings is the activity in a period and is largely driven
by net earnings in that period, accumulated other comprehensive income or loss
(“AOCI”) represents the cumulative balance, net of tax, as of the balance sheet
date. For CSX, AOCI is specifically the cumulative balance related to
the pension and other post-retirement adjustments and in total reduced overall
equity. The balance at December 2008 and December 2007 was $741
million and $325 million, respectively. (See Note 7, Employee Benefit
Plans.)
NOTE
1. Nature of Operations and Significant Accounting Policies,
continued
Derivative
Financial Instruments
CSX
recognizes all derivatives as either assets or liabilities in the Consolidated
Balance Sheets and measures those instruments at fair value. (See
Note 16, Derivative Financial Instruments.)
New
Accounting Pronouncements and Changes in Accounting Policy
CSX
adopted the Financial Accounting Standards Board (“FASB”) Interpretation 48,
Accounting for Uncertainty in
Income Taxes (“FIN 48”), at the beginning of fiscal year 2007. FIN
48 addressed the determination of how tax benefits claimed or expected to be
claimed on an income tax return should be recorded in the financial
statements. Under FIN 48, the Company must recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax
position will be sustained upon examination by the taxing authorities, based on
the technical merits of the position. These tax benefits recognized
in the financial statements are measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate
resolution. The impact of the Company’s reassessment of its tax
positions in accordance with FIN 48 did not have a material impact on the
financial condition, results of operations or liquidity. (See Note
12, Income Taxes.)
In 2007,
the FASB issued SFAS No. 157, Fair Value Measurements, and
the SFAS No. 159, The Fair
Value Option for Financial Assets and Financial
Liabilities. These statements define fair value, provide
guidance on fair value measurement and give companies the option to report
financial instruments and certain other items at fair value. CSX was
not materially impacted by these statements.
In 2007,
the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - An amendment of ARB No. 51 (“SFAS 160”). This statement
clarifies that minority interest should be reported as equity on the balance
sheet. Additionally, it requires disclosure of consolidated net
income attributable to the parent and to the noncontrolling interest on the face
of the income statement. For CSX, SFAS 160 is effective beginning fiscal year
2009 and the Company does not expect to be materially impacted by this
statement.
In
September 2006, FASB issued SFAS 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements
No. 87, 88, 106, and 132 (R) (“SFAS 158”), which changed the accounting
rules for reporting and disclosures related to pensions and other
post-retirement benefit plans. Pursuant to SFAS 158, the Company was
required to change its September measurement date for the pension and other
postretirement benefit plans’ assets and obligations to its fiscal year end
effective in 2008. The effect of the change was a $13 million
after-tax reduction to retained earnings.
NOTE
1. Nature of Operations and Significant Accounting Policies,
continued
Effective
fiscal year 2006, the Company adopted the fair value recognition provisions of
SFAS 123(R), Share-Based
Payment (“SFAS 123(R)”) using the modified-prospective-transition
method. Under this method, compensation costs recognized in 2006 and
forward include all unvested share-based payments as of the beginning of
2006. Share-based compensation at CSX may include stock options,
restricted stock awards, stock issued to CSX directors and CSX’s Long-term
Incentive Plans. The amount of compensation costs recognized is based
upon the estimated grant date fair value method under the Black-Scholes-Merton
formula and resulted in the recognition of additional compensation cost from the
unvested portion of stock options granted prior to 2003.
The
adoption of SFAS 123(R) did not result in a material impact to the Company’s
Consolidated Income Statement or earnings per share. The Company
recorded $3 million in 2006 of additional compensation expense for unvested
stock options granted prior to 2003. Compensation costs for all other
types of share-based payments were consistently reported for all periods
presented.
Use
of 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 the reported amount of certain revenues
and expenses during the reporting period. Actual results may differ
from those estimates. Critical accounting estimates using management
judgment are made for the following areas:
|
|
·
|
casualty,
environmental and legal reserves (see Note 5, Casualty, Environmental and
Other Reserves);
|
|
|
·
|
pension
and post-retirement medical plan accounting (see Note 7, Employee Benefit
Plans);
|
|
|
·
|
depreciation
policies for assets under the group-life method (see “Properties” in this
note); and
|
|
|
·
|
income
taxes (see Note 12, Income Taxes).
|
NOTE
1. Nature of Operations and Significant Accounting Policies,
continued
Other
Items – Share Repurchases
In March 2008, CSX announced an
increase to its share repurchase program, prospectively targeting $3 billion in
shares. Since that announcement, CSX has completed its internal target of
$1.25 billion in share repurchases. As a result, the Company has remaining
authority of $1.75 billion. Further repurchases will be dependent upon an
improvement in market and business conditions.
Total share repurchases under all
publicly announced plans was as follows:
|
Fiscal
Years
|
|||
|
(In
Millions)
|
2008
|
2007
|
|
|
Number
of Shares Repurchased
|
28
|
51
|
|
|
Value
of Shares Repurchased (a)
|
$1,550
|
$2,174
|
|
| (a) |
The
difference between shares repurchased on the cash flow statement and
statement of changes in stockholders’ equity at December 2008 of $1,570
million versus the $1,550 million noted in the table above is
the $20 million of shares repurchased to fund the Company's contribution
to a 401(k) plan that covers certain union
employees.
|
Other
Items – Retained Earnings
During 2008, CSX’s other capital
balance was reduced to zero as a result of share repurchases. As
noted in Accounting Principles Board (“APB”) Opinion 6, Status of Accounting Research
Bulletins, CSX’s other capital balance cannot be negative. As
a result, retained earnings was reduced by $1.2 billion during 2008, which
represented share repurchases occurring after the other capital balance had been
reduced to zero. Also during 2008, CSX changed its measurement date
to its fiscal year end in accordance with SFAS 158. The effect of the
change was a $13 million after-tax adjustment to retained
earnings. Generally, retained earnings is only impacted by net
earnings and dividends.
NOTE
2. Earnings Per Share
The following table sets forth the
computation of basic earnings per share and earnings per share, assuming
dilution:
|
Fiscal
Years
|
||||
|
2008
|
2007
|
2006
|
||
|
Numerator
(Millions):
|
||||
|
Earnings
from Continuing Operations
|
$1,365
|
$1,226
|
$1,310
|
|
|
Interest
Expense on Convertible Debt - Net of Tax
|
1
|
2
|
4
|
|
|
Net
Earnings from Continuing Operations, If-Converted
|
1,366
|
1,228
|
1,314
|
|
|
Discontinued
Operations - Net of Tax
(a)
|
-
|
110
|
-
|
|
|
Net
Earnings, If-Converted
|
1,366
|
1,338
|
1,314
|
|
|
Interest
Expense on Convertible Debt - Net of Tax
|
(1)
|
(2)
|
(4)
|
|
|
Net
Earnings
|
$1,365
|
$1,336
|
$1,310
|
|
|
Denominator
(Thousands):
|
||||
|
Average
Common Shares Outstanding
|
400,683
|
430,270
|
440,084
|
|
|
Convertible
Debt
|
2,989
|
11,469
|
19,456
|
|
|
Stock
Options
(b)
|
3,751
|
5,010
|
6,057
|
|
|
Other
Potentially Dilutive Common Shares
|
1,179
|
1,531
|
337
|
|
|
Average
Common Shares Outstanding, Assuming Dilution
|
408,602
|
448,280
|
465,934
|
|
|
Earnings
Per Share:
|
||||
|
Income
from Continuing Operations
|
$3.41
|
$2.85
|
$2.98
|
|
|
Discontinued
Operations
|
-
|
0.26
|
-
|
|
|
Net
Earnings
|
$3.41
|
$3.11
|
$2.98
|
|
|
Earnings
Per Share, Assuming Dilution:
|
||||
|
Income
from Continuing Operations
|
$3.34
|
$2.74
|
$2.82
|
|
|
Discontinued
Operations
|
-
|
0.25
|
-
|
|
|
Net
Earnings
|
$3.34
|
$2.99
|
$2.82
|
|
(a) For additional information regarding
discontinued operations, see Note 12, Income Taxes.
| (b) |
In calculating diluted
earnings per share, SFAS 128, Earnings Per Share, requires CSX to include
the potential shares that would be outstanding if all outstanding stock
options were exercised. This is offset by shares CSX could
repurchase using the proceeds from these hypothetical exercises to obtain
the common stock equivalent. This number is different from
outstanding stock options, which is included in Note 4, Stock Plans and
Share-Based Compensation. Also, all stock options were
dilutive for the years 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 unvested restricted stock and long-term
incentive awards.
|
EITF 04-8, The Effect of Contingently Convertible
Debt on Diluted Earnings Per Share, requires CSX to include additional
shares in the computation of earnings per share, assuming
dilution. The amount included in diluted earnings per share
represents the number of shares that would be issued if all of CSX’s outstanding
convertible debentures were converted into CSX common stock.
As a result, diluted shares outstanding
are not impacted when debentures are converted into CSX common stock because
those shares were already included in the diluted shares
calculation. Shares outstanding for basic earnings per share,
however, are impacted when conversions occur on a weighted average basis.
During 2008 and 2007, $142 million and $375 million, respectively, of face value
convertible debentures were converted into approximately 5 million and 13
million shares of CSX common stock, respectively. At December 2008,
approximately $32 million of convertible debentures at face value remained
outstanding, which are convertible into 1 million shares of CSX common
stock.
NOTE
3. Shareholders’ Equity
Common
and preferred stock consists of the following:
|
December
26,
|
||
|
Common
Stock, $1 Par Value
|
2008
|
|
|
(in
thousands)
|
||
|
Common
shares authorized
|
600,000
|
|
|
Common
shares issued and outstanding
|
390,526
|
|
|
Preferred
Stock
|
||
|
Preferred
shares authorized
|
25,000
|
|
|
Preferred
shares issued and outstanding
|
-
|
|
Holders
of common stock are entitled to one vote on all matters requiring a vote for
each share held. Preferred stock is senior to common stock with
respect to dividends and upon liquidation of CSX.
NOTE
4.
Stock Plans and 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.
As of December 2008, there were 1,622
current or former employees with stock option grants outstanding under the
various plans. Most new stock awards were granted under the
authorization provided in the CSX Omnibus Incentive Plan. As of December
2008, an additional 11 million shares of stock could be issued under this
plan.
SFAS 123(R) requires the cash flows
resulting from income tax deductions in excess of compensation costs to be
classified as financing cash flows. This requirement resulted in
reduced net operating cash flows and increased net financing cash flows of
approximately $69 million and $60 million for fiscal years 2008 and 2007,
respectively. Prior to the adoption of SFAS 123(R), CSX presented all
income tax benefits from deductions resulting from compensation costs as
operating cash flows in the Consolidated Cash Flow Statements.
NOTE
4. Stock Plans and Share-Based Compensation, continued
SFAS
123(R) also requires the disclosure of total compensation costs for share-based
payment arrangements and the related tax benefits recognized in income. Total
pre-tax expense associated with share-based compensation and its related income
tax benefit is as follows:
|
Fiscal
Years
|
||||
|
(Dollars
in Millions)
|
2008
|
2007
|
2006
|
|
|
Share-Based
Compensation Expense
|
$38
|
$73
|
$45
|
|
|
Income
Tax Benefit
|
14
|
27
|
17
|
|
Stock
Options
Stock
options were granted with 10-year terms. Options outstanding as of
December 2008 are generally exercisable three to ten years after date of
grant. The exercise price for options granted equals the market price
of the underlying stock on the grant date. A summary of CSX's stock
option activity and related information for the fiscal years 2008, 2007 and 2006
is as follows:
|
Fiscal
Years
|
|||||||||||
|
2008
|
2007
|
2006
|
|||||||||
|
Weighted-
|
Weighted-
|
Weighted-
|
|||||||||
|
Options
|
Average
|
Options
|
Average
|
Options
|
Average
|
||||||
|
Outstanding
|
Exercise
|
Outstanding
|
Exercise
|
Outstanding
|
Exercise
|
||||||
|
(000s)
|
Price
|
(000s)
|
Price
|
(000s)
|
Price
|
||||||
|
Outstanding
at Beginning of
Year
|
11,771
|
$18.25
|
19,420
|
$18.96
|
34,151
|
$20.13
|
|||||
|
Expired
or Canceled
|
(21)
|
$19.03
|
(44)
|
$18.05
|
(101)
|
$21.71
|
|||||
|
Exercised
|
(4,441)
|
$18.76
|
(7,605)
|
$20.08
|
(14,630)
|
$21.76
|
|||||
|
Outstanding
at End of Year
|
7,309
|
$17.93
|
11,771
|
$18.25
|
19,420
|
$18.96
|
|||||
|
Exercisable
at End of Year
|
7,309
|
$17.93
|
9,612
|
$18.73
|
12,670
|
$19.78
|
|||||
NOTE
4. Stock Plans and Share-Based Compensation, continued
The
following table summarizes information about stock options outstanding at
December 2008:
|
Weighted-
|
|||||||
|
Average
|
Weighted-
|
Aggregate
|
|||||
|
Number
|
Remaining
|
Average
|
Intrinsic
|
||||
|
Outstanding
|
Contractual
|
Exercise
|
Value(a)
|
||||
|
Exercise
Price
|
(000s)
|
Life
(Years)
|
Price
|
(Millions)
|
|||
|
Options
Outstanding:
|
|||||||
|
$10
to $15
|
340
|
1.31
|
$12.35
|
$9
|
|||
|
$15
to $20
|
6,374
|
3.52
|
$17.81
|
$142
|
|||
|
$20
to $25
|
595
|
0.37
|
$22.42
|
$10
|
|||
|
Total
|
7,309
|
3.16
|
$17.93
|
$161
|
|
(a)
Aggregate intrinsic value represents the amount employees would have
received if the options were exercised as of
December 2008.
|
The total
intrinsic value of options exercised, which represents the value paid to current
and former employees who exercised options for fiscal years ended 2008, 2007 and
2006, was $165 million, $163 million and $147 million,
respectively.
As of
December 2008, all options are vested and therefore there will be no future
expense related to these options.
Restricted
Stock Awards
Restricted
stock awards vest over an employment period of up to five years. The
following table provides information about outstanding restricted stock
awards.
|
Fiscal
Years
|
|||
|
2008
|
2007
|
2006
|
|
|
Number
of Restricted Stock Awards Outstanding (Thousands)
|
39
|
92
|
220
|
|
Weighted
Average Fair Value at Grant Date
|
$29.61
|
$24.26
|
$19.44
|
|
Restricted
Stock Award Expense (Millions)
|
$1
|
$1
|
$2
|
NOTE
4. Stock Plans and Share-Based Compensation, continued
Long-term
Incentive Plans
The CSX
Long-term Incentive Plans (“LTIP”) were adopted under the CSX Omnibus Incentive
Plan. The objective of these long-term incentive plans is to motivate and reward
key members of management and executives for achieving and exceeding certain
financial and strategic initiatives.
In May
2008, 340,000 target performance units were granted to certain layers of
management under a new LTIP. This plan covers a three-year cycle
ending in fiscal year 2010. The key financial target is consolidated operating
ratio, which is defined as annual operating expenses divided by 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
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 attainment of pre-established operating ratio targets for fiscal year
2010. 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. Units in the plan have a weighted average grant date
fair value of $64.86 which includes the value of both the initial grant and
subsequent, smaller grants issued at different prices based on grant date fair
value to new or promoted employees not previously included.
In 2007,
510,000 target performance units were granted to certain layers of management
under a LTIP. This plan covers a three-year cycle ending in fiscal
year 2009. The key financial target is Surface Transportation
operating ratio, which is defined as annual operating expenses divided by
revenue of the Company’s rail and intermodal businesses 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 stock, and payouts
will be made in CSX common stock. The payout range for the majority
of participants will be between 0% and 200% of the original target grant based
upon CSX’s attainment of pre-established operating ratio targets for fiscal year
2009. Payouts for certain senior executive officers are subject to a
20% increase or decrease based upon certain additional pre-established financial
targets. For certain senior executive officers, this could result in
a maximum payout of 240% of the original grant. However, any payout
to certain senior executive officers is also 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. Units in the plan have a weighted average grant date
fair value of $43.71, which includes the value of both the initial grant and
subsequent, smaller grants issued at different prices based on grant date fair
value to new or promoted employees not previously included.
NOTE 4. Stock Plans and
Share-Based Compensation, continued
In 2006,
target performance units were granted to certain layers of management under a
LTIP. This plan covered a three-year cycle ending in fiscal year
2008. The terms for this plan are substantially similar to the
2007 plan. Units in the plan had a weighted average grant date fair
value of $37.07, which included the value of both the initial grant and
subsequent, smaller grants at different prices to new or promoted employees not
previously included. This plan ended on December 26, 2008, and CSX
issued 814,000 net shares in January 2009 as a result of the achievement of
performance targets for the three preceding fiscal years, which had a net market
value of $24 million. The CSX Long-term Incentive Plans were adopted
under the CSX Omnibus Incentive Plan. The objective of these long-term incentive
plans is to motivate and reward key members of management and executives for
achieving and exceeding certain financial and strategic
initiatives.
Total
expense incurred due to long-term incentive plans was as follows:
|
Fiscal
Years
|
|||
|
2008
|
2007
|
2006
|
|
|
Long-term
Incentive Plan Compensation Expense
|
$33
|
$67
|
$35
|
As of
December 2008, there was $15 million of total unrecognized compensation cost
related to these plans that is expected to be recognized over a weighted-average
period of approximately 1.5 years. The activity related to each of
the outstanding long-term incentive plans is summarized as follows:
|
2007
- 2009
|
2008
- 2010
|
|
|
Plan
Units
|
Plan
Units
|
|
|
Outstanding
|
Outstanding
|
|
|
(000s)
|
(000s)
|
|
|
Unvested
at December 29, 2006
|
-
|
-
|
|
Granted
in 2007
|
526
|
-
|
|
Forfeited
in 2007
|
(11)
|
-
|
|
Unvested
at December 28, 2007
|
515
|
-
|
|
Granted
in 2008
|
14
|
350
|
|
Forfeited
in 2008
|
(19)
|
(10)
|
|
Unvested
at December 26, 2008
|
510
|
340
|
NOTE
4. Stock Plans and Share-Based Compensation, continued
Stock
Plan for Directors
The Stock
Plan for Directors, approved by the shareholders in 1992, governs in part the
manner in which directors' fees and retainers were paid. At the end
of 2008, the minimum retainer to be paid in CSX common stock was 50% of the
annual retainer, but each director may elect to receive the entire retainer and
fees in CSX common stock. In addition, each director receives an
annual payment made entirely in CSX common stock. However, in 2008, the Board of
Directors elected to change the date of issue from December 2008 to February
2009. Therefore these shares were not issued before
year-end. The following table provides information about shares
issued to directors.
|
Fiscal
Years
|
||||
|
2008
|
2007
|
2006
|
||
|
Shares
Issued to Directors (Thousands)
|
10
|
68
|
70
|
|
|
Expense
(Millions)
|
$1
|
$3
|
$3
|
|
The Plan permits each director, in
accordance with Internal Revenue Code Section 409A, to defer receipt of
fees. Deferred cash amounts were credited to an account and invested
in a choice of eight investment selections, including a CSX common stock
equivalent fund. Distributions were made in accordance with elections
made by the directors, consistent with the terms of the Plan. At
December 2008, there were 1 million shares of common stock reserved for issuance
under this Plan.
Shareholder
Dividend Reinvestment Plan
CSX
maintains the Shareholder Dividend Reinvestment Plan under which shareholders
may use dividends paid on CSX common stock held in the plan to purchase
additional shares of stock. The following table provides information
about shares available for issuance under this plan at the end of fiscal years
2008, 2007 and 2006.
|
Fiscal
Years
|
||||
|
2008
|
2007
|
2006
|
||
|
Number
of Shares Available for Issuance (Thousands)
|
11,101
|
10,906
|
10,642
|
|
NOTE
5. Casualty, Environmental and Other Reserves
Activity related to casualty,
environmental and other reserves is as follows:
|
Casualty
|
Separation
|
Environmental
|
Other
|
||
|
(Dollars
in Millions)
|
Reserves
|
Liabilities
|
Reserves
|
Reserves
|
Total
|
|
Balance
December 30, 2005
|
$675
|
$121
|
$71
|
$97
|
$964
|
|
Charged
to Expense
|
143
|
-
|
20
|
48
|
211
|
|
Payments
|
(181)
|
(16)
|
(20)
|
(52)
|
(269)
|
|
Reclassifications(a)
|
-
|
15
|
-
|
-
|
15
|
|
Balance
December 29, 2006
|
$637
|
$120
|
$71
|
$93
|
$921
|
|
Charged
to Expense(b)
|
141
|
-
|
76
|
79
|
296
|
|
Change
in Estimate
|
(99)
|
-
|
-
|
-
|
(99)
|
|
Payments(b)
|
(133)
|
(17)
|
(47)
|
(50)
|
(247)
|
|
Balance
December 28, 2007
|
$546
|
$103
|
$100
|
$122
|
$871
|
|
Charged
to Expense
|
115
|
-
|
38
|
57
|
210
|
|
Payments
|
(95)
|
(16)
|
(38)
|
(53)
|
(202)
|
|
Balance
December 26, 2008
|
$566
|
$87
|
$100
|
$126
|
$879
|
|
(a)
|
The
reclassifications in 2006 were reclassified from Labor and Fringe Benefits
Payable.
|
|
(b)
|
Charges
to expense and payments for environmental reserves were higher in 2007
primarily due to clean-up costs associated
with an increase in significant train
accidents.
|
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:
|
December
26, 2008
|
December
28, 2007
|
|||||||
|
(Dollars
in Millions)
|
Current
|
Long-term
|
Total
|
Current
|
Long-term
|
Total
|
||
|
Casualty:
|
||||||||
|
Personal
Injury
|
$104
|
$258
|
$362
|
$113
|
$225
|
$338
|
||
|
Occupational
|
32
|
172
|
204
|
44
|
164
|
208
|
||
|
Total
Casualty
|
136
|
430
|
566
|
157
|
389
|
546
|
||
|
Separation
|
16
|
71
|
87
|
16
|
87
|
103
|
||
|
Environmental
|
42
|
58
|
100
|
42
|
58
|
100
|
||
|
Other
|
42
|
84
|
126
|
32
|
90
|
122
|
||
|
Total
|
$236
|
$643
|
$879
|
$247
|
$624
|
$871
|
||
NOTE
5. Casualty, Environmental and Other Reserves, continued
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. However, should a number of these
items occur in the same period, they could have a material effect on the
financial condition, results of operations or liquidity in that particular
period.
Casualty
Casualty reserves represent accruals
for personal injury and occupational injury claims. Currently, no
individual claim is expected to exceed the Company’s self-insured retention
amount. To the extent the value of an individual claim exceeds the
self-insured retention amount, the Company would present the liability on a
gross basis with a corresponding receivable for insurance
recoveries. Personal injury and occupational claims are presented on
a gross basis and in accordance with SFAS 5, Accounting for Contingencies
(“SFAS 5”). These reserves fluctuate with changes in independent
third party estimates, which are reviewed by management, and are offset by the
timing of payments. Most of the claims were related to CSXT unless
otherwise noted.
Defense
and processing costs, which historically have been insignificant and are
anticipated to be insignificant in the future, are not included in the recorded
liabilities. The Company is presently self-insured up to $25 million per injury
for personal injury and occupational-related claims.
Personal
Injury
Personal
injury reserves represent liabilities for employee work-related and third-party
injuries. Work-related injuries for CSXT employees are primarily
subject to the Federal Employers’ Liability Act (“FELA”). In addition
to FELA liabilities, employees of other CSX subsidiaries are covered by various
state workers’ compensation laws, the Federal Longshore and Harbor Workers’
Compensation Program or the Maritime Jones Act.
CSXT
retains an independent actuarial firm to assist management in assessing the
value of personal injury claims and cases. An analysis is performed
by the independent actuarial firm semi-annually and is reviewed by management.
The methodology used by the actuary includes a development factor to reflect
growth or reduction in the value of these personal injury claims. It is based
largely on CSXT’s historical claims and settlement experience. Actual
results may vary from estimates due to the type and severity of the injury,
costs of medical treatments and uncertainties in litigation.
NOTE
5. Casualty, Environmental and Other Reserves, continued
Based on
the analyses performed, the Company reduced personal injury reserves by $99
million during 2007. This reduction is due to a trend of significant
decreases in the number and severity of work-related injuries for CSXT employees
since 2003. The analyses further indicated an absence of large
catastrophic claims since 2003, which also was determined to be a
trend. These reductions were included in materials, supplies and
other in the consolidated income statements.
Occupational
Occupational
claims arise from allegations of exposures to certain materials in the
workplace, such as asbestos, solvents (which include soaps and chemicals) and
diesel fuels or allegations of chronic physical injuries resulting from work
conditions, such as repetitive stress injuries, carpal tunnel syndrome and
hearing loss.
An analysis is performed semi-annually. The methodology used includes
an estimate of future anticipated claims based on the Company’s trends in
average historical claim filing rates, future anticipated dismissal rates and
settlement rates.
Asbestos
The Company is party to a number of
occupational claims by employees alleging exposure to asbestos in the
workplace. The heaviest possible exposure for employees was due to
work conducted in and around steam locomotive engines that were largely phased
out beginning around the 1950s. However, other types of exposures, including
exposure from locomotive component parts and building materials, continued until
it was substantially eliminated by 1985. Additionally, the Company
has retained liability for asbestos claims filed against its previously owned
international container shipping business.
The
Company retains a third party specialist with extensive experience in performing
asbestos and other occupational studies to assist management in assessing the
value of the Company’s claims and cases. The analysis is performed by the
specialist semi-annually and is reviewed by management. The objective
of the analysis is to determine the number of estimated incurred but not
reported (“IBNR”) claims and the estimated average cost per claim to be received
over the next seven years. Seven years was determined by management
to be the time period in which probable claim filings and claim values could be
estimated with more certainty.
Reserves for
asbestos related claims were $124 million and $129 million at December 2008 and
December 2007, respectively. Reserves for all other occupational
claims were $80 million and $79 million at December 2008 and December 2007,
respectively.
NOTE
5. Casualty, Environmental and Other Reserves, continued
The
Company, with the assistance of the third party specialist, determines it’s
potentially exposed population and is then able to derive the estimated number
of IBNR claims. The estimated average cost per claim is then determined
utilizing recent actual average cost per claim data and national industry data.
Key elements of the assessment include the following:
|
|
·
|
An
estimate is computed using a ratio of Company employee data to national
employment for select years during the period 1938-2001. The
Company uses railroad industry historical census data because it does not
have detailed employment records in order to compute the population of
potentially exposed employees.
|
|
|
·
|
The
projected incidence of disease is estimated based on epidemiological
studies using employees’ age and the duration and intensity of potential
exposure while employed. Epidemiology is the medical science
that deals with the incidence, distribution and control of diseases in a
population.
|
|
|
·
|
An
estimate of the future anticipated claims filing rate by type of disease
(non-malignant, cancer and mesothelioma) is computed using the Company’s
average historical claim filing rates for a three-year calibration period,
excluding a surge in claims originating in West Virginia in
2006. These claimants were neither exposed to asbestos in West
Virginia nor residents of the state. 850 of these claims remain
outstanding. The Company believes these claims will not have merit as
no medical evidence has been provided to substantiate the claims and
therefore the Company has excluded them from the calibration
period. Claim levels have since returned to expected levels and
management feels this calibration period represents the best estimate of
future filing rates.
|
|
|
·
|
An
estimate of the future anticipated dismissal rate by type of claim is
computed using the Company’s historical average dismissal rates observed
during the current calibration period noted
above.
|
|
|
·
|
An
estimate of the future anticipated settlement by type of disease is
computed using the Company’s historical average of dollars paid per claim
for pending and future claims using the average settlement by type of
incident observed during the current calibration period noted
above.
|
NOTE
5. Casualty, Environmental and Other Reserves, continued
From
these assumptions, the Company projects the incidence of each type of disease to
the estimated population to determine the total estimated number of employees
that could potentially assert a claim. Historical claim filing rates were
applied for each type of disease to the total number of employees that could
potentially assert a claim to determine the total number of anticipated claim
filings by disease type. Historical dismissal rates, which represented claims
that were closed without payment, were deducted to calculate the number of
future claims by disease type that would likely require payment by the Company.
Finally, the number of such claims was multiplied by the average settlement
value to estimate the Company’s future liability for IBNR asbestos
claims.
The
estimated future filing rates and estimated average claim values were the most
sensitive assumptions for this reserve. A 1% increase or decrease in
either the forecasted number of IBNR claims or the average claim values would
result in an approximate $1 million increase or decrease in the liability
recorded for unasserted asbestos claims.
Undiscounted liabilities recorded
related to asbestos claims were as follows:
|
December
|
December
|
||
|
(Dollars
in Millions)
|
2008
|
2007
|
|
|
Asbestos:
|
|||
|
Incurred
but not reported claims
|
$54
|
$54
|
|
|
Asserted
claims
|
70
|
75
|
|
|
Total
liability
|
124
|
129
|
|
|
Current
liability
|
$11
|
$15
|
Other
Occupational
The
Company retains a third party specialist with extensive experience in
performing other occupational studies to assist management in
assessing the value of the Company’s claims and cases. The analysis is performed
by the specialist semi-annually and is reviewed by
management. Similar to the asbestos liability estimation process, the
key elements of the assessment include the following:
|
|
·
|
An
estimate of the potentially exposed population for other occupational
diseases is calculated by projecting active versus retired workforce from
2002 to 2010 using a growth rate projection for overall railroad
employment made by the Railroad Retirement Board in its June 2003
report.
|
NOTE
5. Casualty, Environmental and Other Reserves, continued
|
|
·
|
An
estimate of the future anticipated claims filing rate by type of injury,
employee type and active versus retired employee is computed using the
Company’s average historical claim filing rates for the calibration
periods management felt were representative of future filing
rates. For carpal tunnel and repetitive stress injuries, the
current calibration period is a 1-year average of claim
filings. Hearing loss uses a 3-year calibration period, and all
other diseases or injuries use a 2-year calibration period. An
estimate is made to forecast future claims by using the filing rates by
disease and the active and retired Company population each
year.
|
|
|
·
|
An
estimate of the future anticipated settlement by type of injury is
computed using the Company’s historical average of dollars paid per claim
for pending and future claims using the average settlement by type of
injury observed during a period that management feels is representative of
future settlement amounts.
|
The
estimated future filing rates and estimated average claim values were the most
sensitive assumptions for this reserve. A 1% increase or decrease in
either the forecasted number of IBNR claims or the average claim values would
not result in a material increase or decrease in the liability recorded for
unasserted other occupational claims.
Undiscounted
recorded liabilities related to other occupational claims were as
follows:
|
December
|
December
|
||
|
(Dollars
in Millions)
|
2008
|
2007
|
|
|
Other
Occupational:
|
|||
|
Incurred
but not reported claims
|
$46
|
$47
|
|
|
Asserted
claims
|
34
|
32
|
|
|
Total
liability
|
80
|
79
|
|
|
Current
liability
|
$21
|
$29
|
Summary
A summary
of asbestos and other occupational claims activity is as follows:
|
Fiscal
Years
|
||
|
2008
|
2007
|
|
|
Asserted
Claims
|
||
|
Open
Claims - Beginning of Year
|
10,988
|
11,116
|
|
New
Claims Filed
|
400
|
930
|
|
Claims
Settled
|
(392)
|
(553)
|
|
Claims
Dismissed
|
(6,092)
|
(505)
|
|
Open
Claims - End of Year
|
4,904
|
10,988
|
NOTE
5. Casualty, Environmental and Other Reserves, continued
In
the prior year, approximately 6,000 of the open claims were asbestos claims
against the Company’s previously owned international container shipping
business. Approximately 5,700 of these claims have been
administratively dismissed for lack of medical merit. This reduced
the open asbestos claims related to the shipping business claims to
approximately 165. Because these claims were against multiple vessel
owners, the Company’s reserves reflect its portion of those
claims. The Company had approximately $3 million and $9 million
reserved for these shipping business claims at December 2008 and 2007,
respectively. The remaining open claims were asserted against
CSXT.
Separation
Separation
liabilities provide for the estimated benefits provided to certain union
employees as a result of implementing workforce reductions, improvements in
productivity and certain other cost reductions at the Company's major
transportation units since 1991. These liabilities are expected to be paid out
over the next 20 years from general corporate funds and may fluctuate depending
on the timing of payments and associated taxes.
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 244 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
5. Casualty, Environmental and Other Reserves, continued
In
accordance with Statement of Position 96-1, Environmental Remediation
Liabilities, the Company reviews its role with respect to each site
identified at least once a quarter. Based on the review process, the
Company has recorded amounts to cover anticipated contingent future
environmental remediation costs with respect to each site to the extent such
costs are estimable and probable. The recorded liabilities for
estimated future environmental costs are undiscounted and include amounts
representing the Company's estimate of unasserted claims, which the Company
believes to be immaterial. The liability includes future costs for remediation
and restoration of sites as well as any significant ongoing monitoring costs,
but excludes any anticipated insurance recoveries. Payments related
to these liabilities are expected to be made over the next several
years.
Currently,
the Company does not possess sufficient information to reasonably estimate the
amounts of additional liabilities, if any, on some sites until completion of
future environmental studies. In addition, 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 of $126 million and $122
million for 2008 and 2007, respectively, include liabilities for various claims,
such as longshoremen disability claims, freight claims and claims for property,
automobile and general liability. These liabilities are accrued at
the estimable and probable amount in accordance with SFAS 5.
Longshoremen
disability claims represent liability for assessments under Section 8f of the
United States Longshore and Harbor Workers’ Compensation
Program. These reserves, of $75 million and $73 million for 2008 and
2007, respectively, have amounts accrued for second injury fund liabilities,
which represent the non-medical portion of employee claims which are paid by the
United States Department of Labor and are attributed to an earlier injury to the
same employee.
Freight claims represent claims for
both freight loss and damage and freight rate disputes. Freight loss
and damage claims are liabilities that resulted from the loss or damage of
customer freight while being handled by the Company’s transportation
services. Freight rate disputes represent liabilities for customer
claims regarding the rate charged by the Company for its transportation
services. Liabilities for freight rate disputes are recorded as a
reduction of revenue.
The
Company accrues for claims related to property, automobile and general liability
as noted above. The Company is also required to maintain primary and
state mandated coverage for Company property and vehicle
fleets. General liability is coverage for liability arising from
operations of non-rail subsidiaries.
NOTE
6. Commitments and Contingencies
Lease
Commitments
The Company has various lease
agreements with other parties with terms up to 30 years. Non-cancelable,
long-term leases generally include provisions for maintenance, options to
purchase and options to extend the terms.
At December 2008, minimum building and
equipment rentals and commitments for vessels under these operating leases were
as follows:
|
(Dollars
in millions)
|
|||
|
Operating
|
Sublease
|
Net
Lease
|
|
|
Years
|
Leases
|
Income
|
Commitments
|
|
2009
|
$127
|
$37
|
$90
|
|
2010
|
106
|
31
|
75
|
|
2011
|
76
|
17
|
59
|
|
2012
|
76
|
21
|
55
|
|
2013
|
64
|
26
|
38
|
|
Thereafter
|
224
|
49
|
175
|
|
Total
|
$673
|
$181
|
$492
|
Operating leases and an equal portion
of sublease income include approximately $144 million relating to ongoing
operating lease commitments for vessels and equipment, which have been subleased
to Horizon Lines, Inc. (“Horizon”), a former subsidiary previously named CSX
Lines. CSX believes Horizon will fulfill its contractual commitments
with respect to such leases and CSX will have no further liability for those
obligations.
In addition to the commitments in the
table, the Company also has agreements covering equipment leased from Conrail,
Inc. (“Conrail”).
|
Fiscal
Years
|
|||
|
(Dollars
in Millions)
|
2008
|
2007
|
2006
|
|
Rent
Expense on Operating Leases
|
$424
|
$446
|
$514
|
Rent expense on operating leases
included $323 million, $310 million and $355 million of net daily rental charges
on railroad operating equipment in 2008, 2007 and 2006, respectively, which are
not long-term commitments. The Company uses the straight-line method
to recognize rent expense associated with operating leases that include
escalations over their terms.
NOTE
6. Commitments and Contingencies, continued
Purchase
Commitments
CSXT has a commitment under a long-term
maintenance program that currently covers 47% of CSXT’s fleet of
locomotives. The agreement is based on the maintenance cycle for each
locomotive. Under CSXT’s current obligations, the agreement will
expire no earlier than 2028 and may last until 2031 depending upon when certain
locomotives are placed in service. The costs expected to be incurred
throughout the duration of the agreement fluctuate as locomotives are placed
into, or removed from, service or as required maintenance schedules are
revised. The increase in costs shown below is a direct result of both
adding locomotives to the plan each year as well as inflation. CSXT
may terminate the agreement at its option after 2012, though such action would
trigger certain liquidated damages provisions.
The following table summarizes the
number of locomotives covered and CSXT’s payments under the long-term
maintenance program:
|
Fiscal
Years
|
|||
|
(Dollars
in Millions)
|
2008
|
2007
|
2006
|
|
Amounts
Paid
|
$253
|
$217
|
$183
|
|
Number
of Locomotives
|
1,958
|
1,843
|
1,681
|
As a result of agreements executed in
2005 and 2006, CSXT has purchase obligations related to a multi-year plan to
acquire additional locomotives between 2006 and 2011. The amount of the
ultimate purchase commitment depends upon the model of locomotive acquired and
the timing of delivery. Annual payments related to the locomotive
purchase obligations, including amounts that would be payable under the
long-term maintenance program, were estimated as follows:
|
Payments
|
|
|
(Dollars
in Millions)
|
|
|
2009
|
$374
|
|
2010
|
275
|
|
2011
|
393
|
|
2012
|
299
|
|
2013
|
309
|
|
Thereafter
|
4,848
|
|
Total
|
$6,498
|
NOTE
6. Commitments and Contingencies, continued
Additionally,
the Company has various other commitments to purchase technology,
communications, railcar maintenance and other services from various
suppliers. Total annual payments under all of these additional
purchase commitments were estimated as follows:
|
Payments
|
|
|
(Dollars
in Millions)
|
|
|
2009
|
$155
|
|
2010
|
79
|
|
2011
|
56
|
|
2012
|
38
|
|
2013
|
1
|
|
Thereafter
|
-
|
|
Total
|
$329
|
Insurance
The Company maintains numerous
insurance programs, most notably for third-party casualty liability and for
Company property damage and business interruption, with substantial
limits. A certain amount of risk is retained by the Company on each of the
casualty and property programs. Specifically, 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. These deductibles only apply to the first event if more than one
event occurs in a given year. If a property or liability event occurs
in excess of the Company’s deductible and the Company does not elect to purchase
additional insurance coverage, then the deductible for the second covered event
will equal the amount of the claim in the first event.
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. For information on insurance losses resulting from
the effects of Hurricane Katrina on the Company’s operations and assets, See
Note 13, Hurricane Katrina.
Guarantees
CSX and certain of its subsidiaries are
contingently liable, individually and jointly with others, as guarantors of
approximately $57 million in obligations principally relating to leased
equipment, vessels and joint facilities used by the Company in its current and
former business operations. Utilizing the Company’s guarantee for
these obligations allows the obligor to take advantage of lower interest rates
and to 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.
NOTE
6. Commitments and Contingencies, continued
At
December 2008, the Company’s guarantees primarily related to the
following:
|
|
·
|
Guarantee
of approximately $49 million of obligations of a former subsidiary, CSX
Energy, in connection with a sale-leaseback transaction. CSX is, in
turn, indemnified by several subsequent owners of the subsidiary against
payments made with respect to this guarantee. Management does not
expect that CSX will be required to make any payments under this guarantee
for which CSX will not be reimbursed. CSX’s obligation for this guarantee
will be completed in 2012.
|
|
|
·
|
Guarantee
of approximately $8 million of lease commitments assumed by A.P.
Moller-Maersk (“Maersk”) for which CSX is contingently liable. CSX
believes Maersk will fulfill its contractual commitments with respect to
such lease commitments, and CSX will have no further liabilities for those
obligations. CSX’s obligation under this guarantee will be
completed in 2011.
|
As of December 2008, the Company had
not recognized any liabilities in its financial statements in connection with
any guarantee arrangements. The maximum amount of future payments the
Company could be required to make under these guarantees is the sum of the
guaranteed amounts.
Fuel
Surcharge Antitrust Litigation
Since
2007, at least 30 putative class action suits have been filed in various
federal district courts against CSXT and three other U.S.-based Class I
railroads. The lawsuits contain substantially similar allegations to
the effect that the defendants’ fuel surcharge practices relating to contract
and unregulated traffic resulted from an illegal conspiracy in violation of
antitrust laws. The suits seek unquantified treble damages (three
times the amount of actual damages) allegedly sustained by purported class
members, attorneys’ fees and other relief. All but three of the lawsuits
purport to be filed on behalf of a class of shippers that allegedly purchased
rail freight transportation services from the defendants through the use of
contracts or through other means exempt from rate regulation during defined
periods commencing as early as June 2003 and that were assessed fuel
surcharges. Three of the lawsuits purport to be on behalf of indirect
purchasers of rail services.
NOTE
6. Commitments and Contingencies, continued
The class
action suits have been consolidated in federal court in the District of
Columbia. The defendants filed a Motion to Dismiss and oral arguments
were heard in October 2008. On November 7, the Court denied the
railroads’ Motion to Dismiss the claims of shippers who directly purchased
transportation services. On December 31, the Court granted in part
the railroads’ Motion to Dismiss the claims of indirect purchasers who made
purchases from railroad shippers rather than directly from the
railroads. While the Court found that indirect purchasers’
state law claims for money damages are preempted by federal law, it also found
that they had stated a federal antitrust claim for injunctive
relief. On January 16, 2009, on motion by the indirect plaintiffs,
the Court entered final judgment on the state law claims which allow the
indirect plaintiffs to seek an immediate appeal. The Court also
stayed proceedings relating to the claim for injunctive relief
appeal.
Now that
the Motion to Dismiss has been decided, discovery will move
forward. The railroads intend to ask the Court to first proceed with
discovery relating to whether the case is appropriate to certify as a class
action and only if a class is certified would merit discovery takes
place.
One
additional lawsuit was filed, but not served, by an individual
shipper. CSXT entered into a tolling agreement with this shipper
whereby the shipper agreed to dismiss the lawsuit against CSXT without prejudice
and CSXT agreed to extend the statute of limitations for the claims asserted
until the end of 2010.
In 2007,
CSXT received a grand jury subpoena from the New Jersey Office of the Attorney
General seeking information related to the same fuel surcharges that are the
subject of the civil actions. In 2008, the New Jersey Office of the
Attorney General formally notified CSXT that it had decided not to proceed with
its investigation at this time. It is possible that the New Jersey
Attorney General could reopen the investigation or that other federal or state
agencies could initiate investigations into similar matters.
CSXT
believes that its fuel surcharge practices are lawful. Accordingly,
CSXT intends to vigorously defend itself against the purported class actions,
which it believes are without merit. CSXT cannot predict the outcome
of the private lawsuits, which are in their preliminary stages, or of any
government investigations, charges or additional litigation that may be filed in
the future. Penalties for violating antitrust laws can be severe,
involving both potential criminal and civil liability. CSXT is unable
to assess at this time the possible financial impact of this
litigation. CSXT has not accrued any liability for an adverse outcome
in the litigation. If a material adverse outcome were to occur and be
sustained, it could have a material adverse impact on the Company’s financial
condition, results of operations or liquidity.
NOTE
6. Commitments and Contingencies, continued
STB
Rate Case
During 2008, Seminole Electric
Cooperative, Inc. (“Seminole”) filed a complaint before the STB against
CSXT. CSXT and Seminole were parties to a railroad transportation
contract that expired on December 31, 2008. Seminole is contesting
tariff rates that went into effect on January 1, 2009 for movements of coal to
its existing and planned facilities. Because of the preliminary
nature of this case, CSXT is not able to assess at this time the possible
financial impact of the STB proceeding. However, the Company will
continue to consider and pursue all available legal defenses in this
matter.
Also
during 2008, E.I. du Pont de Nemours and Company filed a complaint before the
STB against CSXT, contesting tariff rates that went into effect on December 1,
2008 for movements of various commodities from and/or to certain of its existing
facilities. Similar to the Seminole case, CSXT is not able to assess
at this time the possible financial impact of the STB proceeding. The
Company will also continue to consider and pursue all available legal defenses
in this matter.
Other
Legal Proceedings
In addition to the matters described
above, the Company is involved in litigation incidental to its business and is a
party to a number of legal actions and claims, various governmental proceedings
and private civil lawsuits, including, but not limited to, those related to
environmental matters, FELA claims by employees, other personal injury 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
7. Employee Benefit Plans
General
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 pay 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.
|
Summary
of Participants
|
|||
|
as
of January 1, 2008
|
|||
|
Pension
Plans
|
Post-retirement
Medical Plan
|
||
|
Active
Employees
|
6,548
|
3,465
|
|
|
Retirees
and Beneficiaries
|
10,908
|
10,285
|
|
|
Other
(a)
|
5,945
|
262
|
|
|
Total
|
23,401
|
14,012
|
|
|
(a)
|
For
pension plans, the other category consists of terminated but vested former
employees. For post-retirement plans, the other category
consists of employees on long-term disability that have not yet
retired.
|
Effective
fiscal year 2008, under the provisions of SFAS 158, CSX has changed the
measurement date for pension and post-retirement benefit plans from September 30
to the last day of the Company’s fiscal year. 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. Also, due to
recent volatility in the markets, there has been a significant decrease in the
value of plan assets and, in turn, a large decrease in the funded status of our
qualified pension plan.
NOTE
7. Employee Benefit Plans, continued
The
benefit obligation for these plans represents the liability of the Company for
current and retired employees and is affected primarily by the
following:
|
|
·
|
service
cost (benefits attributed to employee service during the
period);
|
|
|
·
|
interest
cost (interest on the liability due to the passage of
time);
|
|
|
·
|
actuarial
gains/losses (experience during the year different from that assumed and
changes in plan assumptions); and
|
|
|
·
|
benefits
paid to participants.
|
Cash
Flows
Plan
assets are amounts that have been segregated and restricted to provide benefits
and include amounts contributed by the Company and amounts earned from invested
contributions, net of benefits paid. The Company funds the cost of the
post-retirement medical and life insurance benefits as well as nonqualified
pension benefits on a pay-as-you go basis. 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. There are alternative smoothing methods available
both to measure asset values and discounted obligations, as well as to fund any
measured under funding over multiple years. The Worker, Retiree and
Employer Recovery Act of 2008 further increased this flexibility for plan
sponsors in reaction to recent turbulence in the capital
markets. While CSX has not yet determined what measurement method it
will use for funding purposes, the Company estimates that its minimum 2009
contributions after-tax will range from $3 million to $65 million.
Future expected benefit payments are as
follows:
|
Expected
Cash Flows
|
|||
|
(Dollars
in Millions)
|
Pension
Benefits
|
Post-retirement
Benefits(a)
|
|
|
2009
|
$150
|
$43
|
|
|
2010
|
153
|
42
|
|
|
2011
|
156
|
41
|
|
|
2012
|
160
|
39
|
|
|
2013
|
162
|
38
|
|
|
2014
-2018
|
844
|
170
|
|
|
Total
|
$1,625
|
$373
|
|
|
(a)
The post-retirement benefit payments include an estimated annual reduction
of $8 million due to the Medicare Part D
Subsidy.
|
NOTE
7. Employee Benefit Plans, continued
Plan
Assets
The CSX
Investment Committee (“the Investment Committee”), whose members were selected
by the Chief Financial Officer (“CFO”) and approved by the Chief Executive
Officer (“CEO”), is responsible for oversight and investment of pension plan
assets. The Investment Committee utilizes an investment asset
allocation strategy that was developed using asset return simulation in
conjunction with projected plan liabilities. The allocation seeks
maximization of returns within the constraints of acceptable risks considering
the long-term investment horizon. A target allocation of 60% equity
and 40% fixed income investments was established. Common stocks
further target 45% of total plan assets in domestic equity and 15% in
international operations. These allocations are managed to be within
3% of the planned allocation, with re-allocations occurring
quarterly. Recent volatility in the market has resulted in
distributions of asset balances outside of the planned allocations.
The
distribution of pension plan assets as of the measurement date is as
follows:
|
December
2008
|
September
2007
|
||||||
|
Percent
of
|
Percent
of
|
||||||
|
(Dollars
in Millions)
|
Amount
|
Total
Assets
|
Amount
|
Total
Assets
|
|||
|
Common
Stocks
|
$714
|
54
|
%
|
$964
|
60
|
%
|
|
|
Fixed
Income
|
600
|
45
|
626
|
39
|
|||
|
Cash
and Cash Equivalents
|
17
|
1
|
17
|
1
|
|||
|
Total
|
$1,331
|
100
|
%
|
$1,607
|
100
|
%
|
|
Under the
supervision of the Investment Committee, individual investments or fund managers
are selected in accordance with standards of prudence applicable to asset
diversification and investment suitability. The Company also selects
fund managers with differing investment styles and benchmarks their investment
returns against appropriate indices. Fund investment performance is
continuously monitored. Acceptable performance is determined in the
context of the long-term return objectives of the fund and appropriate asset
class benchmarks.
Within
the Company’s equity funds, the U.S. stock segment includes diversification
among large and small capitalization stocks. Guidelines established
with individual managers limit investment by industry sectors, individual stock
issuer concentration and the use of derivatives and CSX securities.
Fixed
income securities guidelines established with individual managers specify the
types of allowable investments, such as government, corporate and asset-backed
bonds, and limit diversification between domestic and foreign investments and
the use of derivatives. Additionally, guidelines stipulate minimum
credit quality constraints and any prohibited securities.
NOTE
7. Employee Benefit Plans, continued
Benefit
Obligation, Plan Assets and Funded Status
As a
result of the change in valuation date during 2008, plan year 2008 consisted of
fifteen months beginning October 1, 2007 and ending December 26,
2008. Plan year 2007 consisted of twelve months beginning
October 1, 2006 and ending September 30, 2007. Changes in benefit
obligation and the fair value of plan assets for the 2008 and 2007 plan years
are as follows:
|
Pension
Benefits
|
Post-retirement
Benefits
|
|||||
|
Plan
Year
|
Plan
Year
|
Plan
Year
|
Plan
Year
|
|||
|
(Dollars
in Millions)
|
2008
|
2007
|
2008
|
2007
|
||
|
Actuarial
Present Value of Benefit Obligation
|
||||||
|
Accumulated
Benefit Obligation
|
$1,950
|
$1,935
|
N/A
|
N/A
|
||
|
Projected
Benefit Obligation
|
2,062
|
2,067
|
$373
|
$404
|
||
|
Change
in Projected Benefit Obligation:
|
||||||
|
Projected
Benefit Obligation at Beginning
|
||||||
|
of
Plan Year
|
$2,067
|
$2,078
|
$404
|
$398
|
||
|
Service
Cost
|
41
|
33
|
7
|
6
|
||
|
Interest
Cost
|
149
|
115
|
27
|
21
|
||
|
Plan
Participants' Contributions
|
-
|
-
|
22
|
16
|
||
|
Actuarial
(Gain)/Loss
|
(12)
|
(13)
|
(15)
|
22
|
||
|
Benefits
Paid
|
(183)
|
(146)
|
(72)
|
(59)
|
||
|
Benefit
Obligation at End of Plan Year
|
$2,062
|
$2,067
|
$373
|
$404
|
||
|
Change
in Plan Assets:
|
||||||
|
Fair
Value of Plan Assets at
|
||||||
|
Beginning
of Plan Year
|
$1,607
|
$1,511
|
$
-
|
$
-
|
||
|
Actual
Return on Plan Assets
|
(466)
|
186
|
-
|
-
|
||
|
Qualified
Employer Contributions(a)
|
347
|
42
|
-
|
-
|
||
|
Non-qualified
Employer Contributions
|
15
|
14
|
50
|
43
|
||
|
Plan
Participants' Contributions
|
-
|
-
|
22
|
16
|
||
|
Benefits
Paid
|
(183)
|
(146)
|
(72)
|
(59)
|
||
|
Fair
Value of Plan Assets at End of Plan
|
$1,320
|
$1,607
|
$
-
|
$
-
|
||
|
Year
|
||||||
|
Funded
Status at December 26, 2008
|
$(742)
|
$(460)
|
$(373)
|
$(404)
|
||
|
(a)
|
During plan year 2008, CSX made
contributions of $347 million to its qualified defined benefit pension
plans. The components of this include $245 million of
contributions made in fourth quarter 2007 plus $102 million of
contributions made during fiscal year
2008.
|
NOTE
7. Employee Benefit Plans, continued
Employer contributions and net
post-retirement benefits paid during the fourth quarter to arrive at the net
funded status of qualified and non-qualified benefit plans as of the end of the
Company’s fiscal year are as follows:
|
Pension
Benefits
|
Post-retirement
Benefits
|
|||||
|
(Dollars
in Millions)
|
2008
|
2007
|
2008
|
2007
|
||
|
Funded
Status at End of Plan Year(a)
|
$(742)
|
$(460)
|
$(373)
|
$(404)
|
||
|
Fourth
Quarter Activity:
|
||||||
|
Qualified
Employer Contributions
|
-
|
245
|
-
|
-
|
||
|
Non-qualified
Employer Contributions
|
-
|
4
|
-
|
-
|
||
|
Net
Post-retirement Benefits Paid
|
-
|
-
|
-
|
10
|
||
|
Ending
Net Funded Status
|
$(742)
|
$(211)
|
$(373)
|
$(394)
|
||
|
(a)
|
As
the plan year 2008 and the fiscal year end 2008 are the same, there is no
fourth quarter 2008 activity that needs to be added to reconcile to the
Ending Net Funded Status for 2008.
|
The above “Ending Net Funded Status”
for pension benefits at December 2008 reflects measurements prescribed by SFAS
158 and related guidance and includes both qualified and nonqualified pension
obligations. For qualified plan funding purposes, assets and
discounted liabilities are measured in accordance with the Pension Protection
Act of 2006, and the Worker, Retiree and Employer Recovery Act of 2008 as well
as other related provisions of the Internal Revenue Code and related
regulations. Under these funding provisions and the alternative
measurements available thereunder, the Company estimates its unfunded obligation
for qualified plans at December 2008 likely ranges from about $110 million to
$240 million, after tax, depending upon the measurement method
selected. The Company expects that cash requirements to fund future
contributions for qualified plans would be funded from cash from
operations.
NOTE 7. Employee Benefit
Plans, continued
Amounts related to pension and
post-retirement benefits recorded on the balance sheet are as
follows:
|
Pension
Benefits
|
Post-retirement
Benefits
|
||||
|
December
|
December
|
December
|
December
|
||
|
(Dollars
in Millions)
|
2008
|
2007
|
2008
|
2007
|
|
|
Amounts
Recorded in Consolidated
|
|||||
|
Balance
Sheets:
|
|||||
|
Long-term
assets
|
$ -
|
$ 4
|
$ -
|
$ -
|
|
|
Current
Liabilities
|
(12)
|
(12)
|
(42)
|
(45)
|
|
|
Long-term
Liabilities
|
(730)
|
(203)
|
(331)
|
(349)
|
|
|
Net
Amount Recognized in
|
|||||
|
Consolidated
Balance Sheet
|
$(742)
|
$(211)
|
$(373)
|
$(394)
|
|
The
funded status, or amount by which the benefit obligation exceeds the fair value
of plan assets, represents a liability. At December 2008, the status of CSX
plans was as follows:
|
Aggregate
|
Aggregate
|
|
|
Fair
Value
|
Projected
|
|
|
Benefit
Obligations in Excess of Plan Assets
|
of
Plan Assets
|
Benefit
Obligation
|
|
Projected
benefit obligation
|
$1.32
billion
|
($2.06
billion)
|
|
Accumulated
benefit obligation
|
$1.32
billion
|
($1.95
billion)
|
Net
Periodic Benefit Expense
The
following table describes the components of expense/(income) related to net
periodic benefit expense.
|
Pension
Benefits
|
Post-retirement
Benefits
|
||||||
|
Fiscal
Years
|
Fiscal
Years
|
||||||
|
(Dollars
in Millions)
|
2008
|
2007
|
2006
|
2008
|
2007
|
2006
|
|
|
Service
Cost
|
$33
|
$33
|
$36
|
$5
|
$6
|
$7
|
|
|
Interest
Cost
|
119
|
115
|
105
|
22
|
21
|
21
|
|
|
Expected
Return on Plan Assets
|
(144)
|
(118)
|
(117)
|
-
|
-
|
-
|
|
|
Amortization
of Prior Service Cost
|
3
|
3
|
4
|
(2)
|
(5)
|
(5)
|
|
|
Amortization
of Net Loss
|
22
|
31
|
34
|
6
|
3
|
7
|
|
|
Net
Periodic Benefit Expense
|
$33
|
$64
|
$62
|
$31
|
$25
|
$30
|
|
NOTE 7. Employee Benefit
Plans, continued
Pension
and Other Post-Employment Benefits Adjustments
The
following table shows the pre-tax change in other comprehensive income (loss)
attributable to the components of net expense and the change in benefit
obligation for CSX for pension and other post-employment benefits.
|
Pension
Benefits
|
Post-retirement
Benefits
|
||||||||
|
Components
of Other
|
December
|
December
|
December
|
December
|
|||||
|
Comprehensive
Income (Loss)
|
2008
|
2007
|
2008
|
2007
|
|||||
|
(Dollars
in Millions)
|
|||||||||
|
Recognized
in the balance sheet
|
|||||||||
|
Gains
(Losses)
|
$(602)
|
$111
|
$22
|
$(18)
|
|||||
|
Prior
service costs
|
3
|
4
|
(2)
|
(5)
|
|||||
|
(Income)
Expense recognized in the income statement
|
|||||||||
|
Amortization
of net loss (a)
|
22
|
31
|
6
|
3
|
|||||
|
Amortization
of prior service cost
(b)
|
3
|
3
|
(2)
|
(5)
|
|||||
|
(a)
|
The
estimated amount to be expensed for 2009 is $26 million and $4 million for
pension benefits and post-retirement benefits,
respectively.
|
|
(b)
|
The
estimated amount to be expensed for prior service costs for 2009 is $3
million for pension benefits. There are no remaining prior
service costs to be expensed in 2009 for post-retirement
benefits.
|
At
December 2008, the balances of pre-tax amounts to be amortized that are included
in accumulated other comprehensive income (a component of Shareholders’ Equity)
are as follows:
|
Post-retirement
|
|||
|
Pension
Benefits
|
Benefits
|
||
|
(Gains)/Losses
|
$953
|
$67
|
|
|
Prior
Service Costs
|
13
|
-
|
|
|
Total
|
$966
|
$67
|
NOTE 7. Employee Benefit
Plans, continued
Assumptions
Weighted-average
assumptions used in accounting for the plans were as follows:
|
Pension
Benefits
|
Post-retirement
Benefits
|
|||||
|
2008
|
2007
|
2008
|
2007
|
|||
|
Expected
Long-term Return on Plan Assets:
|
||||||
|
Benefit
Cost for Plan Year
|
8.50%
|
8.50%
|
N/A
|
N/A
|
||
|
Benefit
Obligation at End of Plan Year
|
8.50%
|
8.50%
|
N/A
|
N/A
|
||
|
Discount
Rates:
|
||||||
|
Benefit
Cost for Plan Year
|
6.00%
|
5.75%
|
5.75%
|
5.50%
|
||
|
Benefit
Obligation at End of Plan Year
|
6.50%
|
6.00%
|
6.50%
|
5.75%
|
||
|
Salary
Scale Inflation
|
3.80%
|
4.10%
|
3.80%
|
4.10%
|
||
The net
post-retirement benefit obligation was determined using the following
assumptions for the health care cost trend rate for medical plans. The rate is
assumed to gradually decrease to 5.0% by 2017. Additionally, there are cost
differentials between Medicare and Non-Medicare eligible individuals which are
reflected below.
|
Post-retirement
Benefits
|
||||
|
2008
|
2007
|
|||
|
Health
Care Cost Trend Rate
|
||||
|
Components
of Benefit Cost: Non-Medicare Eligible
|
9.0%
|
10.0%
|
||
|
Components
of Benefit Cost: Medicare Eligible
|
10.0%
|
11.0%
|
||
|
Benefit
Obligations: Non-Medicare Eligible
|
8.5%
|
9.0%
|
||
|
Benefit
Obligations: Medicare Eligible
|
9.5%
|
10.0%
|
||
For every
1% change in the assumed health care cost trend rate, service and interest cost
will change $1 million on a pre-tax basis (consolidated income statement
impact). For every 1% increase in the health care cost trend rate, the Company’s
benefit obligation will increase by $14 million, and for every 1% decrease, the
Company’s benefit obligation will decrease by $12 million (consolidated balance
sheet impact). An increase in rates has a greater effect on the
Company’s benefit obligation due to the impact of compounding on future
years.
NOTE
7. Employee Benefit Plans, continued
Medicare
Prescription Drug, Improvement and Modernization Act of 2003
As
required by the Medicare Prescription Drug, Improvement and Modernization Act of
2003 (the “Act”), the Company has determined that its medical plan’s
prescription drug benefit qualifies as actuarially equivalent to the benefit
that would be paid under the Act. The Company has received $2 million
and $4 million in tax free federal reimbursement for prescription drug claims in
both 2008 and 2007, respectively.
Other
Plans
Under
collective bargaining agreements, the Company participates in a multi-employer
benefit plan, which provides certain post-retirement health care and life
insurance benefits to eligible contract employees. Premiums under this plan are
expensed as incurred and amounted to $36 million, $31 million and $30 million in
2008, 2007 and 2006, respectively.
The
Company maintains savings plans for virtually all full-time salaried employees
and certain employees covered by collective bargaining
agreements. Expense associated with these plans was $25 million, $24
million and $18 million for 2008, 2007 and 2006, respectively.
NOTE
8. Debt and Credit Agreements
Debt was as follows:
|
Average
|
|||||
|
Interest
|
|||||
|
Rates
at
|
|||||
|
December
|
December
|
December
|
|||
|
(Dollars
in Millions)
|
Maturity
|
2008
|
2008
|
2007
|
|
|
Notes
|
2009-2043
|
6.6%
|
$6,756
|
$6,291
|
|
|
Convertible
Debentures, net of $3 and
|
|||||
|
$23
discount, respectively
|
2021
|
2.1%
|
28
|
151
|
|
|
Equipment
Obligations
|
2009-2023
|
7.1%
|
1,002
|
738
|
|
|
Capital
Leases
|
2009-2015
|
6.5%
|
45
|
73
|
|
|
Total
Long-term Debt (including current portion)
|
7,831
|
7,253
|
|||
|
Less
Debt Due within One Year
|
(319)
|
(783)
|
|||
|
Long-term
Debt (excluding current portion)
|
$7,512
|
$6,470
|
|||
Early
Redemption of Long-term Debt
In 2007, CSX called $150 million of
notes due in 2032. CSX recognized a $10 million reduction to other
income for an early redemption premium and the write-off of debt issuance costs
related to this early repayment. In 2008, CSX did not redeem any
long-term debt before its maturity date.
NOTE
8. Debt and Credit Agreements, continued
Debt
Issuance
CSX issued a total of $1.4 billion in
debt during 2008 as follows:
|
Notes
|
Principal
Amount Issued
|
|
(Dollars
in Millions)
|
|
|
CSX
6.25% Note due 2015
|
$600
|
|
CSX
7.45% Note due 2038
|
400
|
|
CSXT
8.375% Secured Equipment Notes due 2014(a)
|
351
|
|
$1,351
|
|
(a)
|
The
CSXT notes are secured by a security interest in certain railroad
equipment.
|
These
notes were included in the Consolidated Balance Sheets under Long-term Debt and
may be redeemed by the Company at any time. The net proceeds from the
sale of the notes will be used for general corporate purposes, which may include
repurchases of CSX common stock, capital expenditures, working capital
requirements, improvements in productivity and other cost reductions at the
Company's major transportation units.
Additionally,
in January 2009, the Company took advantage of an improvement in capital market
conditions and issued $500 million of 7.375% Notes due 2019.
Convertible
Debentures
In 2001,
CSX issued $564 million aggregate principal amount at maturity in unsubordinated
zero coupon convertible debentures (the "debentures") due in 2021 for an initial
offering price of approximately $462 million. The carrying value of
outstanding debentures was $28 million and $151 million, at December 2008 and
December 2007, respectively. From their date of issuance, these
debentures had accreted (increased) in value at a yield to maturity of 1% per
year. In 2007, the accretion rate was reset to 2.1%. The
accretion rate may be reset again in October 2011 and October 2016 to a rate
based on five-year United States Treasury Notes minus 2.8%. In no
event will the yield to maturity be reset below 1% or above 3% per
annum. Accretion in value on the debentures is recorded in each month
but will not be paid prior to maturity.
The
debentures allow holders to require CSX to purchase their debentures in October
2011 and October 2016, at a purchase price equal to the accreted value of the
debentures at the time. CSX may redeem the debentures for cash at any
time at a redemption price equal to the accreted value of the
debentures.
Holders
currently may convert their debentures into shares of CSX common stock at a
conversion rate of 35.49 common shares per $1,000 principal amount at maturity
of debentures. During 2008 and 2007, $142 million and $375 million
face value of debentures was converted into 5 and 13 million shares of CSX
common stock, respectively. At December 2008, $32 million face value
debentures remained outstanding convertible into approximately 1 million shares
of CSX common stock.
NOTE 8. Debt and Credit
Agreements, continued
Long-term
Debt Maturities
|
(Dollars
in Millions)
|
Maturities
as of December 2008
|
|||
|
Fiscal Years Ending
|
||||
|
2009
|
$319
|
|||
|
2010
|
106
|
|||
|
2011
|
605
|
|||
|
2012
|
507
|
|||
|
2013
|
782
|
|||
|
2014
and Thereafter
|
5,512
|
|||
|
Total
Long-term Debt Maturities (including current portion)
|
$7,831
|
|||
Credit
Facilities
In 2006,
the Company entered into a $1.25 billion five-year unsecured revolving credit
facility and a $15 million secured revolving credit facility expiring in
2011. In 2007, with the consent of the lenders and in accordance with
the facility’s terms, CSX extended the maturity date of the $1.25 billion
facility an additional year, to 2012. CSX also has a $17 million
364-day unsecured revolving credit facility expiring in August
2009.
Additionally,
with the approval of the lending banks, CSX may increase its total borrowing
capacity under the $1.25 billion facility by $500 million, from $1.25 billion to
up to $1.75 billion. The facility was not
drawn on as of December 2008. Commitment fees and interest rates
payable under the facility were similar to fees and rates available to
comparably rated investment-grade borrowers.
In 2008,
CSX paid approximately $2 million in total fees associated with the undrawn
facilities. These credit facilities allow for borrowings at floating
(LIBOR-based) interest rates, plus a spread, depending upon CSX’s senior
unsecured debt ratings. LIBOR is the London Interbank Offered Rate which is a
daily reference rate based on the interest rates at which banks offer to lend
unsecured funds. At December 2008, CSX was in compliance with all covenant
requirements under the facilities.
NOTE
8. Debt and Credit Agreements, continued
Fair
Value of Financial Instruments
Fair
values of CSX’s financial instruments were estimated by reference to quoted
prices from market sources and financial institutions as well as other valuation
techniques. Long-term debt is the only financial instrument of CSX with fair
values significantly different from their carrying amounts. The fair
value of long-term debt has been estimated using discounted cash flow analysis
based upon CSX's current incremental borrowing rates for similar types of
financing arrangements.
|
December
|
||||||||
|
(Dollars
in Billions)
|
2008
|
2007
|
||||||
|
Long-term
Debt Including Current Maturities:
|
||||||||
|
Fair
Value
|
$7.4
|
$7.4
|
||||||
|
Carrying
Value
|
$7.8
|
$7.3
|
||||||
NOTE
9. Other Income (Expense) - Net and Supplemental Data
Other
Income (Expense) - Net consists of the following:
|
Fiscal
Years
|
||||
|
(Dollars
in Millions)
|
2008
|
2007
|
2006
|
|
|
Interest
Income(a)
|
$37
|
$55
|
$41
|
|
|
Income
from Real Estate Operations (b)
|
39
|
58
|
37
|
|
|
Loss
from Resort Operations (c)
|
(204)
|
(16)
|
(13)
|
|
|
Gain
on Conrail Property (After Tax) (d)
|
-
|
-
|
26
|
|
|
Miscellaneous
(e)
|
25
|
(8)
|
(7)
|
|
|
Total
Other Income (Expense) - Net
|
$(103)
|
$89
|
$84
|
|
|
Gross
revenue from Real Estate and Resort
|
||||
|
Operations
included above
|
$168
|
$211
|
$193
|
|
|
(a)
|
Interest
income includes amounts earned from CSX’s cash, cash equivalents and
short-term investments.
|
|
(b)
|
Income
from real estate includes the results of operations of the Company’s
non-operating real estate sales, leasing, acquisition and management and
development activities. Income may fluctuate as a function of
timing of real estate sales.
|
|
(c)
|
Loss
from resort operations in 2008 consists primarily of the $166 million
pre-tax write-down of the Company’s investment in The Greenbrier
resort. Additionally, results from resort operations were down
in 2008 because of decreased group business resulting from the uncertainty
of labor negotiations and an inability to sufficiently reduce contractual
labor costs accordingly.
|
|
(d)
|
Gain
on Conrail property represents a non-cash gain on additional Conrail
property value received in 2006.
|
|
(e)
|
Miscellaneous
income includes a number of items which can be income or
expense. Examples of these items are equity earnings and/or
losses, minority interest expense, investment gains and losses and other
non-operating activities.
|
|
|
·
|
For the year 2008, CSX
recorded additional income of $30 million for an adjustment to correct
equity earnings from a non-consolidated
subsidiary.
|
|
|
·
|
For the year 2007, CSX
recorded expense of $10 million related to an early redemption premium and
the write-off of debt issuance
costs.
|
Supplemental data consists of the
following:
Operating
expense of $8.5 billion, $7.8 billion and $7.4 billion included selling, general
& administrative expenses of $670 million, $585 million and $547 million for
fiscal years 2008, 2007 and 2006, respectively.
NOTE
9. Other Income (Expense) - Net and Supplemental Data,
continued
Impairment
Loss
Properties
and other long-lived assets are reviewed for impairment whenever events or
business conditions indicate the carrying amount of such assets may not be fully
recoverable. Initial assessments of recoverability are based on estimates of
undiscounted future net cash flows associated with an asset or a group of assets
in accordance with SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Where impairment is indicated, the
assets are evaluated and their carrying amount is reduced to fair value based on
discounted net cash flows or other estimates of fair value.
During
2008, the Company identified impairment indicators associated with the Company’s
resort, The Greenbrier, which caused the Company to review the carrying amount
of the assets of the resort. These indicators included: results of a
strategic review of the resort’s operations to determine the best business
strategy going forward, the effect of the severe economic downturn which has
negatively impacted the luxury resort industry, and escalating operating losses
that are primarily driven by higher labor costs and reduced group
business. All of these conditions also contributed to a significant
decrease in the market value of the resort.
After a
review of the expected future undiscounted cash flows, it was determined that
primarily the resort’s property, plant and equipment and other assets were
impaired. Therefore, during 2008, the Company incurred an impairment loss
of $166 million pre-tax or $107 million after-tax to write-down the carrying
amount of the assets to fair value. Fair value was determined based on a
discounted cash flow analysis. The discounted cash flow analysis was
determined by the Company based on estimates of future revenue, expenses and
capital expenditures which are considered to be level 3 inputs within the fair
value hierarchy under SFAS No. 157, Fair Value Measurements. The
pre-tax impairment loss is included in other income, consistent with the
reporting of the results from operations of the resort as these assets are
considered to be non-operating assets of the Company.
NOTE
10. Properties
CSX’s
capital spending includes purchased or self-constructed assets and property
additions that substantially extend the service life or increase the utility of
those assets. Indirect costs that can be specifically traced to
capital projects are also capitalized. CSX is committed to
maintaining and improving its existing infrastructure and expanding its network
for long-term growth. Rail operations are capital intensive and CSX
accounts for these costs in accordance with GAAP and the Company’s
capitalization policy. A detail of the Company’s properties are as
follows:
|
Annual
|
||||
|
December
|
December
|
Depreciation
|
||
|
(Dollars
in Millions)
|
2008
|
2007
|
Rate
(a)
|
|
|
Road
|
||||
|
Rail
and Other Track Material
|
$5,324
|
$5,079
|
2.9%
|
|
|
Ties
|
3,503
|
3,355
|
4.2%
|
|
|
Ballast
|
2,181
|
2,086
|
2.7%
|
|
|
Other
|
8,449
|
8,322
|
3.0%
|
|
|
Total
Road
|
$19,457
|
$18,842
|
||
|
Equipment
(b)
|
||||
|
Locomotive
|
$4,335
|
$3,985
|
3.6%
|
|
|
Freight
Cars
|
2,777
|
2,582
|
3.8%
|
|
|
Work
Equipment and Other
|
356
|
331
|
3.9%
|
|
|
Total
Equipment
|
$7,468
|
$6,898
|
||
|
Land
|
$1,907
|
$1,899
|
N/A
|
|
|
Intermodal
|
672
|
612
|
N/A
|
|
|
Computer
Hardware/Software and Other
|
443
|
406
|
16.7%
|
|
|
Construction
In Progress
|
261
|
342
|
N/A
|
|
|
Total
Properties
|
30,208
|
28,999
|
||
|
Accumulated
Depreciation
|
(7,520)
|
(7,219)
|
||
|
Net
Properties
|
$22,688
|
$21,780
|
||
|
(a)
|
Rates
apply to CSXT assets which account for more than 95% of total
assets. All other property is depreciated on a straight line
basis over the asset’s useful life. See Note 1, Nature of
Operations and Significant Accounting Policies, for more information
related to the Company’s depreciation policies and asset
lives.
|
|
(b)
|
Included
in the table above are $310 million of assets purchased using seller
financing. Of that balance, $182 million was included in other
current liabilities for 2008 as this amount was unpaid as of year
end.
|
Note
10. Properties, continued
CSX’s
largest category of capital spending is track assets which are typically
completed by CSX employees. Costs for track projects that are
capitalized include:
|
|
·
|
costs
to purchase or construct new track or to prepare ground for the laying of
track;
|
|
|
·
|
rail,
field and plant welding which are processes used to connect segments of
rail;
|
|
·
|
rail
grinding which is a procedure for removing ridges and defects in a rail
surface to restore rail to its original shape and extend its useful
life;
|
|
|
·
|
ballast
(material that holds track in
line);
|
|
|
·
|
fuels
and lubricants associated with tie, rail and surfacing work (the process
of raising track to a designated elevation over an extended
distance);
|
|
|
·
|
cross,
switch and bridge ties which are the braces that support the rails on a
track;
|
|
|
·
|
gauging
which is the process of standardizing the distance between
rails;
|
|
|
·
|
handling
costs associated with installing ties or ballast;
and
|
|
|
·
|
other
track materials.
|
Normal
repairs and maintenance costs of track materials are expensed as
incurred. These costs include repairs made to track such as spot
replacement of broken or worn rail, ties or ballast, handling costs associated
with the removal of ties and other costs of track materials.
Capital
spending related to locomotives and freight cars comprise the second largest
category of the Company’s capital assets. This category includes
purchase costs of new locomotives and freight cars as well as certain equipment
leases that are considered to be capital leases in accordance with SFAS 13,
Accounting for Leases. In addition, costs to modify or rebuild these
assets are capitalized if the spending incurred extend the asset’s useful life
or improve utilization. Improvement projects must meet specified
dollar thresholds to be capitalized and are reviewed by management to determine
proper accounting treatment. Routine equipment maintenance activities
and repairs are expensed as incurred.
NOTE
11. Other Long-term Assets and Other Long-term
Liabilities
Other
Long-term Assets
Other
Long-term Assets consisted of the following:
|
December
|
||||
|
(Dollars
in Millions)
|
2008
|
2007
|
||
|
Goodwill (a)
|
$64
|
$64
|
||
|
Available
for Sale Securities (b)
|
48
|
75
|
||
|
Debt
Issuance Costs
|
36
|
34
|
||
|
Other
Long-term Assets
|
46
|
86
|
||
|
Total
Other Long-term Assets
|
$194
|
$259
|
||
|
(a)
|
Goodwill
related to subsidiaries of CSXT represents the purchase price in excess of
fair value.
|
|
(b)
|
Available
for Sale Securities include investments in marketable
securities.
|
Other
Long-term Liabilities
Other
Long-term Liabilities consisted of the following:
|
December
|
||||
|
(Dollars
in Millions)
|
2008
|
2007
|
||
|
Pension
Plan Liability (a)
|
$730
|
$203
|
||
|
Post-retirement
Benefit Liability (a)
|
331
|
349
|
||
|
Deferred
Gains
|
160
|
181
|
||
|
Accrued
Deferred Compensation
|
77
|
90
|
||
|
Accrued
Sick Leave
|
24
|
16
|
||
|
Deferred
Lease Payments
|
21
|
40
|
||
|
Minority
Interest
|
21
|
21
|
||
|
Income
Taxes Payable
|
9
|
7
|
||
|
Other
Long-term Liabilities
|
73
|
81
|
||
|
Total
Other Long-term Liabilities
|
$1,446
|
$988
|
||
|
(a) See
Note 7, Employee Benefit Plans, for a discussion on changes in pension and
post-retirement benefit
liabilities.
|
NOTE
12. Income Taxes
Earnings
from continuing operations before income taxes of $2.1 billion, $1.9 billion and
$1.8 billion for fiscal years 2008, 2007, and 2006, respectively, represent
earnings from domestic operations.
The significant components of deferred
tax assets and liabilities include:
|
2008
|
2007
|
|||||
|
(Dollars
in Millions)
|
Assets
|
Liabilities
|
Assets
|
Liabilities
|
||
|
Pension
Plans
|
$ 282
|
$ -
|
$ 81
|
$ -
|
||
|
Other
Employee Benefit Plans
|
317
|
-
|
323
|
-
|
||
|
Accelerated
Depreciation
|
-
|
6,882
|
-
|
6,541
|
||
|
Other
|
469
|
218
|
447
|
152
|
||
|
Total
|
$1,068
|
$7,100
|
$851
|
$6,693
|
||
|
Net
Deferred Tax Liabilities
|
$6,032
|
$5,842
|
||||
The
primary factors in the change in year-end net deferred income tax liability
balances include:
|
|
·
|
Annual
provision for deferred income tax expense;
and
|
|
|
·
|
Accumulated
other comprehensive loss and other capital
adjustments;
|
The
breakdown of income tax expense between current and deferred is as
follows:
|
(Dollars
in Millions)
|
Fiscal
Years
|
|||
|
Current:
|
2008(a)
|
2007
|
2006
|
|
|
Federal
|
$273
|
$388
|
$458
|
|
|
State
|
73
|
46
|
31
|
|
|
Total
Current
|
346
|
434
|
489
|
|
|
Deferred:
|
||||
|
Federal
|
408
|
237
|
15
|
|
|
State
|
27
|
35
|
27
|
|
|
Total
Current
|
435
|
272
|
42
|
|
|
Total
|
$781
|
$706
|
$531
|
|
|
(a)
|
The
increase in deferred tax liability during 2008 is primarily due to the
bonus depreciation provision of the Economic Stimulus Act of
2008.
|
NOTE
12. Income Taxes, continued
Income
tax expense reconciled to the tax computed at statutory rates is as
follows:
|
Fiscal
Years
|
|||||||||
|
(Dollars
In Millions)
|
2008
|
2007
|
2006
|
||||||
|
Federal
Income Taxes
|
$751
|
35
|
%
|
$676
|
35
|
%
|
$644
|
35
|
%
|
|
State
Income Taxes
|
63
|
3
|
50
|
3
|
37
|
2
|
|||
|
Prior
Year Audit Resolutions
|
(18)
|
(1)
|
5
|
-
|
(132)
|
(7)
|
|||
|
Other
Items(a)
|
(15)
|
(1)
|
(25)
|
(1)
|
(18)
|
(1)
|
|||
|
Income
Tax Expense/Rate
|
$781
|
36
|
%
|
$706
|
37
|
%
|
$531
|
29
|
%
|
(a)
Other items primarily include tax impacts from equity in Conrail and other
partially owned subsidiaries’ earnings.
The change in the 2008 effective income
tax rate compared to the prior year is primarily attributed to prior year audit
resolutions.
CSX
adopted FIN 48 at the beginning of fiscal year 2007. As a result of the
implementation, the Company recognized a $31 million decrease to reserves for
uncertain tax positions. This decrease, along with a $2 million
reduction for unconsolidated subsidiaries accounted for under the equity method
of accounting, was recorded as a cumulative effect adjustment to the beginning
balance of retained earnings on the balance sheet.
The
change to the total gross unrecognized tax benefits of the Company during the
fiscal year ended December 2008 is reconciled as follows:
|
Uncertain
Tax Positions:
|
Fiscal
Year
|
|
|
(Dollars
in Millions)
|
2008
|
2007
|
|
Beginning
Balance
|
$58
|
$207
|
|
Additions
based on tax positions related to current year
|
3
|
1
|
|
Additions
based on tax positions related to prior year
|
14
|
-
|
|
Settlements
with IRS
|
(16)
|
(148)
|
|
Lapse
of statute of limitations
|
(2)
|
(2)
|
|
Balance
at December 2008
|
$57
|
$58
|
As of
December 2008 and 2007, the Company had approximately $57 million and $58
million, respectively, of total unrecognized tax benefits. After
consideration of the impact of federal tax benefits, $50 million for both years,
could favorably affect the effective income tax rate. The Company
estimates that approximately $22 million of the unrecognized tax benefits as of
December 2008 for various state and federal income tax matters will be resolved
over the next 12 months. Approximately, $13 million of this total
would be closed upon the expiration of statutes. The final outcome of
these uncertain tax positions, however, is not yet determinable.
NOTE
12. Income Taxes, continued
The
Company files a consolidated federal income tax return, which includes its
principal domestic subsidiaries. CSX and its subsidiaries are subject to U.S.
federal income tax as well as income tax of multiple state
jurisdictions. During 2008, the Internal Revenue Service (“IRS”)
completed its examination of tax years 2004 through 2006. The Company
has appealed a tax adjustment proposed by the IRS with respect to these tax
years of which the amount is included in the uncertain tax positions
above. The appeals process is expected to last more than one
year. During 2008, the IRS completed their examination of the 2007
tax year without exception. All other federal prior tax year audits
are settled.
In 2007,
the IRS completed its review of the Company’s pre-filing agreement, which is an
early review of specific transactions. The Company recorded an income
tax benefit of $110 million in 2007, primarily associated with the resolution of
income tax matters related to former activities of the container shipping and
marine service businesses. This benefit is recorded as discontinued
operations as the Company no longer operated in these
businesses. This benefit is associated with tax basis adjustments,
foreign dividends and foreign tax credits from operations over a multi-year
period.
CSX’s
continuing practice is to recognize net interest and penalties related to income
tax matters in income tax expense. Included in the consolidated income
statements are benefits of $2 million, $8 million, and $79 million for fiscal
years 2008, 2007, and 2006, respectively, for the reduction to reserves for
interest and penalties for all prior year tax positions. Benefits for
interest and penalties are due to favorable tax settlements of prior period tax
audits where the Company had previously accrued a liability for interest and
penalties. The Company had $2 million and $4 million accrued for
interest and penalties for 2008 and 2007, respectively, for all prior year tax
positions. The decrease for interest and penalties during both 2008
and 2007 is primarily related to the resolution of federal income tax audits and
payments made to the IRS by the Company.
NOTE
13. Hurricane Katrina
In August 2005, Hurricane Katrina
caused extensive damage to Company assets on the Gulf Coast, including damage to
track infrastructure and bridges. Operations were returned to
pre-hurricane conditions by the end of the first quarter of 2006.
In order
to determine the proper accounting treatment for the damage, the Company
reviewed EITF 01-10, Accounting for the Impact of the
Terrorist Attacks of September 11, 2001, specifically Issue 3, of that
consensus, in which the Task Force concluded that insurance recoveries in
connection with property and casualty losses should be recognized when
realization of the claim for recovery of a loss recognized in the financial
statements is deemed probable. Information regarding the Company’s
insurance coverage at that time, damage estimates and the allocation of the
insurance deductible is as follows:
NOTE
13. Hurricane Katrina, continued
Insurance
Coverage
In 2005,
the Company had insurance coverage of $535 million, after a $25 million
deductible (per occurrence), for the following types of losses:
|
|
·
|
Fixed Assets
Damages – The Company is entitled to the current replacement cost
of the damaged assets. The Company’s bridges and track damaged
by Hurricane Katrina comprised the majority of these types of
losses.
|
|
|
·
|
Business
Interruption - The Company is entitled to recover the increased
costs incurred to allow the Company to continue operations and to minimize
the overall business impact to the Company during the period of
indemnity. These increased costs include rerouting and other
costs.
|
|
|
·
|
Lost Profit -
The Company is entitled to recover lost profits, net of associated
expenses, during the period of indemnity. The period of indemnity is
defined in the relevant policies of insurance and extends not only through
the date upon which the railroad network was restored to its original
operations, but for such additional time as may be required to
restore revenue to the same level as would have existed had no loss
occurred.
|
The
Company’s insurance policies do not prioritize coverage based on types of
losses. As claims were submitted to the insurance companies, they
were reviewed and preliminary payments were received until all losses were
incurred and documented. A final payment will be received once the
Company and its insurers agree on the total value of the claim.
In May 2008, the Company filed a
lawsuit in federal court against a number of companies that provide insurance
and reinsurance coverage to the Company. The insurance companies have
refused to cover certain losses totaling approximately $50 million that the
Company has incurred as a result of Hurricane Katrina and which the Company
believes are covered by the policies at issue. The specific claims
relate to lost profits following the storm, costs associated with replacing two
diesel locomotives and claims adjustment expenses. The Company has
asked the court to determine whether its damages are covered by the
policies. If the Company prevails, a separate proceeding will
determine the amount of the Company’s recovery. The Company will not
recognize gains related to these disputed amounts until they are resolved by the
courts.
NOTE
13. Hurricane Katrina, continued
Damage
Estimates
Management’s
current loss estimate is approximately $450 million. Damages are
categorized as follows:
|
|
·
|
Fixed Asset
Damages - The cost estimate was based on the replacement value of
approximately 39 miles of continuous track, six major bridges, numerous
small bridges, signal and communication damage, locomotive repair and
facilities damaged throughout the
region.
|
|
|
·
|
Incremental
Expenses - The Company’s incremental expenses relate primarily to
rerouting and other costs. Rerouting costs are incurred to move
traffic either through alternative locations on the Company’s network or
on other railroad lines. Other costs include debris removal,
maintenance on equipment damaged by water, supplies, environmental
expenses, maintenance labor and other various
items.
|
|
|
·
|
Lost
Profit - The Company
estimated the impact on revenue at a location and customer-specific
level.
|
Allocation
of Deductible
The Company’s insurance policies
required its participation in the first $25 million of each loss event, without
regard to the category of the covered losses. Because the Company’s
insurance policies do not specifically apply the deductible by the types of
losses covered, CSX believes it is inconsistent with the form and economic
substance of the Company’s policies to attribute the entire deductible to a
single component of covered losses. Therefore, the Company allocated
the $25 million self-insured deductible among the above three categories of
losses in proportion to the best estimate of the total ultimate losses eligible
for recovery under the Company’s insurance policies.
NOTE
13. Hurricane Katrina, continued
Gain
on Insurance Recoveries
As of
December 2008, the Company has collected $373 million of insurance proceeds and
recognized $200 million of pre-tax gains for claims related to Hurricane Katrina
cumulatively since 2005. The gains were attributable to recovering
amounts in excess of the net book value of damaged fixed assets and to recording
recoveries related to lost profits. The $5 million gain on insurance
recoveries shown below was included in materials, supplies and other on the
consolidated income statements. Additional cash proceeds are expected
and will result in future gain recognition.
Details
of how the gain was calculated are as follows:
|
Fiscal
Years
|
|||||
|
(Dollars
in Millions)
|
2008
|
2007
|
2006
|
||
|
Total
Insurance Proceeds
|
$6
|
$29
|
$268
|
||
|
Less
Recoverable Losses:
|
|||||
|
Net
book value of fixed asset damage
|
-
|
-
|
(1)
|
||
|
Incremental
expense
|
(1)
|
(2)
|
(56)
|
||
|
Prior
year receivable
|
-
|
-
|
(43)
|
||
|
Gain
|
$5
|
$27
|
$168
|
||
Gain
contingencies subject to FIN 30, Accounting for Involuntary
Conversions of Nonmonetary Assets to Monetary Assets and SFAS 5, were not
recognized until the period in which all contingencies were resolved or cash
proceeds were received. The insurance recovery for the replacement
cost of property damage in excess of book value and the recovery of lost profits
were considered to be gain contingencies. Therefore the net gain
(after applying the insurance deductible) was deferred until the cash proceeds
are/were received.
Cash
Flows
Cash
proceeds from the insurers are not specific to the types of losses and so, for
cash flow presentation, the Company allocated the proceeds ratably among the
three types of losses mentioned above. Allocated cash proceeds for
lost profits and incremental expenses were classified as operating activities
since they related directly to revenue and expenses from operations and were $3
million, $13 million and $121 million for 2008, 2007 and 2006,
respectively. Allocated cash proceeds for fixed asset damage were
classified as investing activities because these proceeds had a direct
relationship to money the Company spent on property additions to repair the
hurricane-damaged assets that were recorded in the same
category. Cash proceeds for fixed asset damage were $3 million, $16
million and $147 million for 2008, 2007 and 2006, respectively.
NOTE
14. Related Party Transactions
Through a
limited liability company, CSX and Norfolk Southern Corporation (“NS”) jointly
own 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 Accounting Principle Board (“APB”) Opinion
18, The Equity Method of
Accounting for Investments in Common Stock, CSX applies the equity method
of accounting to its investment in Conrail.
Conrail owns and operates rail
infrastructure for the joint benefit of CSX and NS. This is known as
the shared asset area. Conrail charges fees for right-of way usage, equipment
rentals and transportation, switching and terminal service charges in the shared
asset area. Historically, these expenses were included as an
expense category called Conrail rents, fees and services, in the consolidated
income statements. Beginning in 2007, these amounts have been
included in materials, supplies and other on the consolidated income
statements. Prior periods have been reclassified to conform to the
current presentation.
Also
included in materials, supplies and other are CSX’s 42% share of Conrail’s
income and its amortization of the fair value write-up arising from the
acquisition of Conrail and certain other adjustments. The
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.
The following table details the related
Conrail amounts included in materials, supplies and other in the Company’s
consolidated income statements:
|
Fiscal
Years
|
||||||
|
(Dollars
in Millions)
|
2008
|
2007
|
2006
|
|||
|
Rents,
Fees and Services
|
$112
|
$97
|
$91
|
|||
|
Purchase
Price Amortization and Other
|
4
|
4
|
4
|
|||
|
Equity
in Income of Conrail
|
(23)
|
(35)
|
(20)
|
|||
|
Total
Conrail Rents, Fees and Services
|
$93
|
$66
|
$75
|
|||
Interest
expense from the promissory notes payable to Conrail, or a subsidiary, was as
follows:
|
Fiscal
Years
|
||||||
|
(Dollars
in Millions)
|
2008
|
2007
|
2006
|
|||
|
Interest
Expense Related to Conrail
|
$4
|
$4
|
$4
|
|||
NOTE
14. Related Party Transactions, continued
As
required by SFAS 57, Related
Party Disclosures, the Company has identified below amounts owed to
Conrail, or its affiliates, representing liabilities under the operating,
equipment and shared area agreements with Conrail. The Company also
executed two promissory notes with a subsidiary of Conrail which were included
in long-term debt on the consolidated balance sheets.
|
December
26,
|
December
28,
|
|||
|
(Dollars
in Millions)
|
2008
|
2007
|
||
|
Balance
Sheet Information:
|
||||
|
CSX
Payable to Conrail (a)
|
$63
|
$49
|
||
|
Promissory
Notes Payable to Conrail Subsidiary
|
||||
|
4.40%
CSX Promissory Note due October 2035 (b)
|
$73
|
$73
|
||
|
4.52%
CSXT Promissory Note due March 2035 (b)
|
$23
|
$23
|
||
|
(a)
Included on the consolidated balance sheet of CSX as accounts payable
because it is short term in nature.
|
||||
|
(b)
Included on the consolidated balance sheet of CSX as long-term
debt.
|
||||
NOTE
15. Discontinued Operations
In 2005, CSX sold its International
Terminals business, which included the capital stock of SL Services, Inc.
(“SLSI”) to Dubai Ports International FZE (“DPI”) for gross cash consideration
of $1.142 billion.
In 2007,
the IRS completed its review of the Company’s pre-filing agreement, which is an
early review of specific transactions. The Company recorded an income
tax benefit of $110 million, primarily associated with the resolution of income
tax matters related to former activities of the marine service businesses,
including the International Terminals business described above. This
2007 benefit was recorded as discontinued operations as the Company no longer
operates in these businesses. This benefit was associated with tax
basis adjustments, foreign dividends and foreign tax credits from operations
over a multi-year period.
SLSI held
certain residual assets and liabilities as a result of prior divestitures and
discontinuances. A wholly-owned subsidiary of CSX retains the rights
to those assets and indemnifies DPI, SLSI and related entities against those
liabilities pursuant to a separate agreement. CSX guarantees the
obligations of its subsidiary under this separate agreement.
NOTE
16. Derivative Financial Instruments
CSX uses
derivative financial instruments to manage its overall exposure to fluctuations
in interest rates and has previously used such instruments to manage exposure to
fluctuations in fuel costs.
Interest
Rate Swaps
During
2007, CSX repaid $450 million of debentures that matured and called $150 million
of debentures due in 2032 (See Note 8, Debt and Credit
Agreements). As a result, CSX also settled the interest rate swaps
related to these debentures. CSX had $30 million and $35 million of
outstanding interest rate swaps that impacted interest expense by $1 million and
$2 million for 2008 and 2007, respectively. The interest rate swap
agreements were designated and qualified as fair value hedges. CSX’s
interest rate swaps qualified as perfectly effective, as defined by SFAS 133,
Accounting for Derivative
Instruments and Hedging Activities. As such, there was no
ineffective portion to the hedge recognized in earnings during the current or
prior year periods.
Fuel
Hedging
In 2003,
CSX began a program to hedge a portion of CSXT’s future locomotive fuel
purchases. This program was established to manage exposure to fuel price
fluctuations. To minimize this risk, CSX entered into a series of
swaps. Ineffectiveness, or the extent to which changes in the fair
values of the fuel swaps did not offset changes in the fair values of the
expected fuel purchases, was immaterial. CSX suspended entering into
new swaps in its fuel hedge program in 2004 and there are currently no
outstanding contracts.
Fuel hedging activity offset increased
fuel expense for fiscal year 2006 by $55 million. Since the end of
2006, there has been no impact on fuel expense as all contracts expired prior to
that time.
NOTE
17. Business Segments
The
Company’s consolidated operating income results are comprised of two business
segments: Rail and Intermodal. The Rail segment provides rail freight
transportation over a network of approximately 21,000 route miles in 23 states,
the District of Columbia and the Canadian provinces of Ontario and Quebec. The
Intermodal segment provides integrated rail and truck transportation services
and operates a network of dedicated intermodal facilities across North
America. These segments are strategic business units that offer
different services and are managed separately. Performance of the
segment is evaluated and resources are allocated based on several factors, of
which the principal financial measures are business segment operating income and
operating ratio. The accounting policies of the segments are the same
as those described in Note 1, Nature of Operations and Significant Accounting
Policies.
NOTE
17. Business Segments, continued
Certain
segment information has been reclassified to conform to current year
presentation. See Note 1, Nature of Operations and Significant
Accounting Policies, for further details. Business segment
information for the fiscal years 2008, 2007 and 2006 was as
follows:
|
Fiscal
Years
|
|||||
|
(Dollars
in Millions)
|
2008
|
2007
|
2006
|
||
|
Revenue
from External Customers:
|
|||||
|
Rail
|
$9,789
|
$8,674
|
$8,154
|
||
|
Intermodal
|
1,466
|
1,356
|
1,412
|
||
|
Consolidated
|
$11,255
|
$10,030
|
$9,566
|
||
|
Operating
Income:
|
|||||
|
Rail
|
$2,478
|
$2,000
|
$1,881
|
||
|
Intermodal
|
290
|
260
|
268
|
||
|
Consolidated
|
$2,768
|
$2,260
|
$2,149
|
||
|
Assets:
|
|||||
|
Rail
|
$25,343
|
$24,502
|
$24,212
|
||
|
Intermodal
|
321
|
283
|
276
|
||
|
Investment
in Conrail
|
609
|
639
|
607
|
||
|
Elimination
of Intersegment Payables (Receivables)
|
(8)
|
(121)
|
(174)
|
||
|
Non-segment
Assets
|
23
|
231
|
208
|
||
|
Consolidated
|
$26,288
|
$25,534
|
$25,129
|
||
|
Depreciation
Expense:
|
|||||
|
Rail
|
$879
|
$849
|
$822
|
||
|
Intermodal
|
25
|
34
|
38
|
||
|
Consolidated
|
$904
|
$883
|
$860
|
||
|
Property
Additions:
|
|||||
|
Rail
|
$1,672
|
$1,678
|
$1,595
|
||
|
Intermodal
|
62
|
60
|
28
|
||
|
Non-Segment
|
6
|
35
|
16
|
||
|
Consolidated
|
$1,740
|
$1,773
|
$1,639
|
||
NOTE
18. Quarterly Financial Data (Unaudited)
Pursuant
to Article 3 of the Securities and Exchange Commission (“SEC”)’s Regulation S-X,
the following are selected quarterly financial data:
|
2008
|
||||||||
|
Quarters
|
||||||||
|
(Dollars
in Millions, Except Per Share Amounts)
|
1st
(a)
|
2nd
(b)
|
3rd
|
4th
(c)
|
Full
Year
|
|||
|
Operating
Revenue
|
$2,713
|
$2,907
|
$2,961
|
$2,674
|
$11,255
|
|||
|
Operating
Income
|
626
|
717
|
733
|
692
|
2,768
|
|||
|
Net
Earnings
|
$351
|
$385
|
$382
|
$247
|
$1,365
|
|||
|
Earnings
Per Share:
|
||||||||
|
Net
Earnings
|
$0.87
|
$0.95
|
$0.95
|
$0.63
|
$3.41
|
|||
|
Earnings
Per Share Assuming Dilution:
|
||||||||
|
Net
Earnings
|
$0.85
|
$0.93
|
$0.94
|
$0.63
|
$3.34
|
|||
|
Dividend
Per Share
|
$0.15
|
$0.18
|
$0.22
|
$0.22
|
$0.77
|
|||
|
2007
|
||||||||
|
Quarters
|
||||||||
|
(Dollars
in Millions, Except Per Share Amounts)
|
1st
(d)
|
2nd
|
3rd
(e)
|
4th
(f)
|
Full
Year (g)
|
|||
|
Operating
Revenue
|
$2,422
|
$2,530
|
$2,501
|
$2,577
|
$10,030
|
|||
|
Operating
Income
|
485
|
612
|
558
|
605
|
2,260
|
|||
|
Earnings
from Continuing Operations
|
240
|
324
|
297
|
365
|
1,226
|
|||
|
Discontinued
Operations
|
-
|
-
|
110
|
-
|
110
|
|||
|
Net
Earnings
|
$240
|
$324
|
$407
|
$365
|
$1,336
|
|||
|
Earnings
Per Share:
|
||||||||
|
From
Continuing Operations
|
$0.55
|
$0.74
|
$0.69
|
$0.89
|
$2.85
|
|||
|
Discontinued
Operations
|
-
|
-
|
0.25
|
-
|
0.26
|
|||
|
Net
Earnings
|
$0.55
|
$0.74
|
$0.94
|
$0.89
|
$3.11
|
|||
|
Earnings
Per Share Assuming Dilution:
|
||||||||
|
From
Continuing Operations
|
$0.52
|
$0.71
|
$0.67
|
$0.86
|
$2.74
|
|||
|
Discontinued
Operations
|
-
|
-
|
0.24
|
-
|
0.25
|
|||
|
Net
Earnings
|
$0.52
|
$0.71
|
$0.91
|
$0.86
|
$2.99
|
|||
|
Dividend
Per Share
|
$0.12
|
$0.12
|
$0.15
|
$0.15
|
$0.54
|
|||
|
|
Prior
periods have been reclassified to conform to the current
presentation.
|
|
(a) CSX recorded
a non-cash adjustment of $30 million to correct equity
earnings from a
non-consolidated subsidiary resulting in additional
income.
|
|
(b)
CSX recognized a tax
benefit of $18 million principally related to the settlement of federal
income tax audits and certain other tax
matters.
|
|
(c) CSX recognized an
impairment loss of $166 million pre-tax on its investment in The
Greenbrier resort.
|
|
(d)
CSX recognized an $18 million pre-tax benefit on insurance recoveries from
gains related to Hurricane Katrina (See Note 13, Hurricane
Katrina).
|
|
(e)
CSX recognized an income tax benefit of $110 million principally
associated with the resolution of certain tax matters related to former
activities of the container shipping and marine service businesses (See
Note 15, Discontinued Operations). Additionally, CSX recognized
a $1 million pre-tax benefit on insurance recoveries from gains related to
Hurricane
Katrina.
|
|
(f)
CSX recognized an $8 million pre-tax benefit on insurance recoveries from
gains related to Hurricane
Katrina.
|
|
(g)
Total pre-tax benefits on insurance recoveries recognized during fiscal
year 2007 were $27 million.
|
NOTE
19. Summarized Consolidating Financial Data
In 2007,
CSXT sold $381 million of Secured Equipment Notes due 2023 in a registered
public offering pursuant to an existing shelf registration statement. CSX has
fully and unconditionally guaranteed the notes. In connection with the notes,
the Company is providing the following condensed consolidating financial
information in accordance with SEC disclosure requirements. Each entity in the
consolidating financial information follows the same accounting policies as
described in the consolidated financial statements, except for the use of the
equity method of accounting to reflect ownership interests in subsidiaries which
are eliminated upon consolidation and the allocation of certain expenses of CSX
incurred for the benefit of its subsidiaries.
The
condensed consolidating balance sheets as of December 2008 and
December 2007, and the statements of income and cash flows for each of the
three fiscal years in the period ended December 2008, for the obligor and parent
guarantor are as follows:
NOTE
19. Summarized Consolidating Financial Data
Consolidating
Income Statements
(Dollars
in Millions)
|
Fiscal
Year Ended December 26, 2008
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Operating
Revenue
|
$
-
|
$9,712
|
$1,675
|
$(132)
|
$11,255
|
|||||
|
Operating
Expense
|
(193)
|
7,511
|
1,289
|
(120)
|
8,487
|
|||||
|
Operating
Income
|
193
|
2,201
|
386
|
(12)
|
2,768
|
|||||
|
Equity
in Earnings of Subsidiaries
|
1,469
|
-
|
-
|
(1,469)
|
-
|
|||||
|
Other
Income (Expense)
|
141
|
118
|
(172)
|
(190)
|
(103)
|
|||||
|
Interest
Expense
|
(544)
|
(155)
|
(22)
|
202
|
(519)
|
|||||
|
Earnings
from Continuing Operations before Income Taxes
|
1,259
|
2,164
|
192
|
(1,469)
|
2,146
|
|||||
|
Income
Tax Benefit (Expense)
|
106
|
(733)
|
(154)
|
-
|
(781)
|
|||||
|
Net
Earnings
|
$1,365
|
$1,431
|
$38
|
$(1,469)
|
$1,365
|
|||||
|
Fiscal
Year Ended December 28, 2007
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Operating
Revenue
|
$
-
|
$8,591
|
$1,546
|
$(107)
|
$10,030
|
|||||
|
Operating
Expense
|
(203)
|
6,894
|
1,176
|
(97)
|
7,770
|
|||||
|
Operating
Income
|
203
|
1,697
|
370
|
(10)
|
2,260
|
|||||
|
Equity
in Earnings of Subsidiaries
|
1,363
|
-
|
-
|
(1,363)
|
-
|
|||||
|
Other
Income (Expense)
|
166
|
154
|
194
|
(425)
|
89
|
|||||
|
Interest
Expense
|
(568)
|
(238)
|
(46)
|
435
|
(417)
|
|||||
|
Earnings
from Continuing Operations before Income Taxes
|
1,164
|
1,613
|
518
|
(1,363)
|
1,932
|
|||||
|
Income
Tax Benefit (Expense)
|
62
|
(614)
|
(154)
|
-
|
(706)
|
|||||
|
Earnings
from Continuing Operations
|
1,226
|
999
|
364
|
(1,363)
|
1,226
|
|||||
|
Discontinued
Operations - Net of Tax
|
110
|
-
|
-
|
-
|
110
|
|||||
|
Net
Earnings
|
$1,336
|
$999
|
$364
|
$(1,363)
|
$1,336
|
NOTE
19. Summarized Consolidating Financial Data, continued
Consolidating
Income Statements
(Dollars
in Millions)
|
Fiscal
Year Ended December 29, 2006
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
Operating
Revenue
|
$
-
|
$8,140
|
$1,426
|
$
-
|
$9,566
|
|
Operating
Expense
|
(195)
|
6,542
|
1,070
|
-
|
7,417
|
|
Operating
Income
|
195
|
1,598
|
356
|
-
|
2,149
|
|
Equity
in Earnings of Subsidiaries
|
1,281
|
-
|
-
|
(1,281)
|
-
|
|
Other
Income (Expense)
|
283
|
87
|
131
|
(417)
|
84
|
|
Interest
Expense
|
(536)
|
(217)
|
(56)
|
417
|
(392)
|
|
Earnings
from Continuing Operations before Income Taxes
|
1,223
|
1,468
|
431
|
(1,281)
|
1,841
|
|
Income
Tax Benefit (Expense)
|
87
|
(489)
|
(129)
|
-
|
(531)
|
|
Net
Earnings
|
$1,310
|
$979
|
$302
|
$(1,281)
|
$1,310
|
NOTE
19. Summarized Consolidating Financial Data, continued
Consolidating
Balance Sheets
(Dollars
in Millions)
|
December
26, 2008
|
CSX
Corporation
|
CSX
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
|
|
-
|
|||||
|
Investment
in Conrail
|
-
|
-
|
609
|
-
|
609
|
|
Affiliates
and Other Companies
|
-
|
527
|
(121)
|
-
|
406
|
|
Investment
in Consolidated Subsidiaries
|
14,546
|
-
|
41
|
(14,587)
|
-
|
|
Other
Long-term Assets
|
52
|
76
|
109
|
(43)
|
194
|
|
Total
Assets
|
$15,282
|
$24,350
|
$1,365
|
$(14,709)
|
$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
|
|
Short-term
Debt
|
-
|
-
|
1
|
-
|
1
|
|
Income
and Other Taxes Payable
|
(2)
|
208
|
(81)
|
-
|
125
|
|
Other
Current Liabilities
|
2
|
271
|
23
|
(11)
|
285
|
|
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
|
513
|
(33)
|
(44)
|
1,446
|
|
Total
Liabilities
|
7,234
|
11,774
|
(602)
|
(166)
|
18,240
|
|
Shareholders'
Equity:
|
|||||
|
Common
Stock
|
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)
|
|
Total
Shareholders' Equity
|
8,048
|
12,576
|
1,967
|
(14,543)
|
8,048
|
|
Total
Liabilities and Shareholders' Equity
|
$15,282
|
$24,350
|
$1,365
|
$(14,709)
|
$26,288
|
NOTE
19. Summarized Consolidating Financial Data, continued
Consolidating
Balance Sheets
(Dollars
in Millions)
|
December
28, 2007
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
ASSETS
|
|||||
|
Current
Assets:
|
|||||
|
Cash
and Cash Equivalents
|
$298
|
$55
|
$15
|
$-
|
$368
|
|
Short-term
Investments
|
270
|
-
|
76
|
-
|
346
|
|
Accounts
Receivable - Net
|
10
|
1,069
|
95
|
-
|
1,174
|
|
Materials
and Supplies
|
-
|
230
|
10
|
-
|
240
|
|
Deferred
Income Taxes
|
23
|
232
|
(1)
|
-
|
254
|
|
Other
Current Assets
|
25
|
60
|
96
|
(72)
|
109
|
|
Total
Current Assets
|
626
|
1,646
|
291
|
(72)
|
2,491
|
|
-
|
|||||
|
Properties
|
6
|
27,606
|
1,387
|
-
|
28,999
|
|
Accumulated
Depreciation
|
(9)
|
(6,400)
|
(810)
|
-
|
(7,219)
|
|
Properties
- Net
|
(3)
|
21,206
|
577
|
-
|
21,780
|
|
-
|
|||||
|
Investment
in Conrail
|
-
|
-
|
639
|
-
|
639
|
|
Affiliates
and Other Companies
|
-
|
470
|
(105)
|
-
|
365
|
|
Investment
in Consolidated Subsidiaries
|
14,524
|
-
|
34
|
(14,558)
|
-
|
|
Other
Long-term Assets
|
(50)
|
203
|
162
|
(56)
|
259
|
|
Total
Assets
|
$15,097
|
$23,525
|
$1,598
|
$(14,686)
|
$25,534
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||
|
Current
Liabilities:
|
|||||
|
Accounts
Payable
|
$90
|
$799
|
$87
|
$-
|
$976
|
|
Labor
and Fringe Benefits Payable
|
36
|
374
|
51
|
-
|
461
|
|
Payable
to Affiliates
|
747
|
1,325
|
(2,000)
|
(72)
|
-
|
|
Casualty,
Environmental and Other Reserves
|
-
|
226
|
21
|
-
|
247
|
|
Current
Maturities of Long-term Debt
|
669
|
111
|
3
|
-
|
783
|
|
Short-term
Debt
|
-
|
2
|
2
|
-
|
4
|
|
Income
and Other Taxes Payable
|
(761)
|
572
|
302
|
-
|
113
|
|
Other
Current Liabilities
|
8
|
72
|
7
|
-
|
87
|
|
Total
Current Liabilities
|
789
|
3,481
|
(1,527)
|
(72)
|
2,671
|
|
-
|
|||||
|
Casualty,
Environmental and Other Reserves
|
-
|
540
|
84
|
-
|
624
|
|
Long-term
Debt
|
5,229
|
1,230
|
11
|
-
|
6,470
|
|
Deferred
Income Taxes
|
(176)
|
6,291
|
(19)
|
-
|
6,096
|
|
Long-term
Payable to Affiliates
|
-
|
-
|
56
|
(56)
|
-
|
|
Other
Long-term Liabilities
|
570
|
541
|
(85)
|
(38)
|
988
|
|
Total
Liabilities
|
6,412
|
12,083
|
(1,480)
|
(166)
|
16,849
|
|
Shareholders'
Equity:
|
-
|
||||
|
Common
Stock
|
408
|
181
|
-
|
(181)
|
408
|
|
Other
Capital
|
37
|
5,525
|
2,705
|
(8,230)
|
37
|
|
Retained
Earnings
|
8,565
|
5,769
|
420
|
(6,189)
|
8,565
|
|
Accumulated
Other Comprehensive Loss
|
(325)
|
(33)
|
(47)
|
80
|
(325)
|
|
Total
Shareholders' Equity
|
8,685
|
11,442
|
3,078
|
(14,520)
|
8,685
|
|
Total
Liabilities and Shareholders' Equity
|
$15,097
|
$23,525
|
$1,598
|
$(14,686)
|
$25,534
|
NOTE
19. Summarized Consolidating Financial Data, continued
Consolidating
Cash Flow Statements
(Dollars
in Millions)
|
CSX
|
CSX
|
|||||||||
|
Fiscal
Year Ended December 26, 2008
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Operating
Activities
|
||||||||||
|
Net
Cash (Used in) Provided by Operating Activities
|
$1,093
|
$2,390
|
$139
|
$(708)
|
$2,914
|
|||||
|
Investing
Activities
|
||||||||||
|
Property
Additions
|
-
|
(1,635)
|
(105)
|
-
|
(1,740)
|
|||||
|
Purchases
of Short-term Investments
|
(25)
|
-
|
-
|
-
|
(25)
|
|||||
|
Proceeds
from Sales of Short-term Investments
|
280
|
-
|
-
|
-
|
280
|
|||||
|
Other
Investing Activities
|
569
|
124
|
136
|
(793)
|
36
|
|||||
|
Net
Cash Provided by (Used in) Investing Activities
|
824
|
(1,511)
|
31
|
(793)
|
(1,449)
|
|||||
|
Financing
Activities
|
||||||||||
|
Short-term
Debt - Net
|
-
|
(2)
|
(1)
|
-
|
(3)
|
|||||
|
Long-term
Debt Issued
|
1,000
|
351
|
-
|
-
|
1,351
|
|||||
|
Long-term
Debt Repaid
|
(518)
|
(121)
|
(3)
|
-
|
(642)
|
|||||
|
Dividends
Paid
|
(314)
|
(325)
|
(27)
|
358
|
(308)
|
|||||
|
Stock
Options Exercised
|
83
|
-
|
-
|
-
|
83
|
|||||
|
Shares
Repurchased
|
(1,570)
|
-
|
-
|
-
|
(1,570)
|
|||||
|
Other
Financing Activities
|
(337)
|
(774)
|
(107)
|
1,143
|
(75)
|
|||||
|
Net
Cash (Used in) Provided by Financing Activities
|
(1,656)
|
(871)
|
(138)
|
1,501
|
(1,164)
|
|||||
|
Net
(Decrease) Increase in Cash and Cash Equivalents
|
261
|
8
|
32
|
-
|
301
|
|||||
|
Cash
and Cash Equivalents at Beginning of Period
|
298
|
55
|
15
|
-
|
368
|
|||||
|
Cash
and Cash Equivalents at End of Period
|
$559
|
$63
|
$47
|
$
-
|
$669
|
NOTE
19. Summarized Consolidating Financial Data, continued
Consolidating
Cash Flow Statements
(Dollars
in Millions)
|
CSX
|
CSX
|
||||
|
Fiscal
Year Ended December 28, 2007
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
Operating
Activities
|
|||||
|
Net
Cash (Used in) Provided by Operating Activities
|
$(871)
|
$2,321
|
$919
|
$(185)
|
$2,184
|
|
Investing
Activities
|
|||||
|
Property
Additions
|
(2)
|
(1,632)
|
(139)
|
-
|
(1,773)
|
|
Purchases
of Short-term Investments
|
(2,338)
|
-
|
-
|
-
|
(2,338)
|
|
Proceeds
from Sales of Short-term Investments
|
2,459
|
-
|
-
|
-
|
2,459
|
|
Other
Investing Activities
|
513
|
235
|
(781)
|
(8)
|
(41)
|
|
Net
Cash Provided by (Used in) Investing Activities
|
632
|
(1,397)
|
(920)
|
(8)
|
(1,693)
|
|
Financing
Activities
|
|||||
|
Short-term
Debt - Net
|
-
|
(6)
|
-
|
-
|
(6)
|
|
Long-term
Debt Issued
|
2,000
|
381
|
-
|
-
|
2,381
|
|
Long-term
Debt Repaid
|
(620)
|
(142)
|
(23)
|
-
|
(785)
|
|
Dividends
Paid
|
(236)
|
(120)
|
(27)
|
152
|
(231)
|
|
Stock
Options Exercised
|
153
|
-
|
-
|
-
|
153
|
|
Shares
Repurchased
|
(2,174)
|
-
|
-
|
-
|
(2,174)
|
|
Other
Financing Activities
|
998
|
(999)
|
38
|
41
|
78
|
|
Net
Cash (Used in) Provided by Financing Activities
|
121
|
(886)
|
(12)
|
193
|
(584)
|
|
Net
(Decrease) Increase in Cash and Cash Equivalents
|
(118)
|
38
|
(13)
|
-
|
(93)
|
|
Cash
and Cash Equivalents at Beginning of Period
|
416
|
17
|
28
|
-
|
461
|
|
Cash
and Cash Equivalents at End of Period
|
$298
|
$55
|
15
|
$
-
|
$368
|
NOTE
19. Summarized Consolidating Financial Data, continued
Consolidating
Cash Flow Statements
(Dollars
in Millions)
|
CSX
|
CSX
|
||||
|
Fiscal
Year Ended December 29, 2006
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
Operating
Activities
|
|||||
|
Net
Cash Provided by (Used in) Operating Activities
|
$789
|
$1,794
|
$246
|
$(771)
|
$2,058
|
|
Investing
Activities
|
|||||
|
Property
Additions
|
-
|
(1,554)
|
(85)
|
-
|
(1,639)
|
|
Purchases
of Short-term Investments
|
(1,412)
|
-
|
-
|
-
|
(1,412)
|
|
Proceeds
from Sales of Short-term Investments
|
1,290
|
-
|
-
|
-
|
1,290
|
|
Other
Investing Activities
|
(38)
|
128
|
47
|
14
|
151
|
|
Net
Cash (Used in) Provided by Investing Activities
|
(160)
|
(1,426)
|
(38)
|
14
|
(1,610)
|
|
Financing
Activities
|
|||||
|
Short-term
Debt - Net
|
-
|
8
|
(1)
|
-
|
7
|
|
Long-term
Debt Issued
|
400
|
73
|
(2)
|
-
|
471
|
|
Long-term
Debt Repaid
|
(350)
|
(128)
|
(68)
|
-
|
(546)
|
|
Dividends
Paid
|
(148)
|
(130)
|
(30)
|
163
|
(145)
|
|
Stock
Options Exercised
|
318
|
-
|
1
|
-
|
319
|
|
Shares
Repurchased
|
(465)
|
-
|
-
|
-
|
(465)
|
|
Other
Financing Activities
|
(225)
|
(174)
|
(132)
|
594
|
63
|
|
Net
Cash (Used in) Provided by Financing Activities
|
(470)
|
(351)
|
(232)
|
757
|
(296)
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
159
|
17
|
(24)
|
-
|
152
|
|
Cash
and Cash Equivalents at Beginning of Period
|
257
|
-
|
52
|
-
|
309
|
|
Cash
and Cash Equivalents at End of Period
|
$416
|
$17
|
28
|
$
-
|
$461
|
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
As of
December 26, 2008, 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 December 26, 2008, 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 the fourth quarter of 2008 that have materially affected or are
reasonably likely to materially affect the Company's internal control over
financial reporting.
Management's
Report on Internal Control over Financial Reporting
CSX’s
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Under the supervision and with the participation of the
management of CSX, including CSX’s CEO and CFO, CSX conducted an evaluation of
the effectiveness of the Company’s internal control over financial reporting as
of December 26, 2008 based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission which is also referred to as COSO. Based on that evaluation,
management of CSX concluded that the Company’s internal control over financial
reporting was effective as of December 26, 2008. Management's
assessment of the effectiveness of internal control over financial reporting is
expressed at the level of reasonable assurance because a control system, no
matter how well designed and operated, can provide only reasonable, but not
absolute, assurance that the control system's objectives will be
met.
The
Company’s internal control over financial reporting as of December 26, 2008 has
been audited by Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which is included elsewhere
herein.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders of CSX Corporation
We have
audited CSX Corporation’s internal control over financial reporting as of
December 26, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). CSX Corporation’s management is responsible for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, CSX Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 26, 2008, based on the
COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2008 consolidated financial statements of
CSX Corporation and our report dated February 17, 2009 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Independent Certified Public
Accountants
Jacksonville,
Florida
February
17, 2009
Changes
in Internal Control over Financial Reporting
There
were no material changes in the Company’s internal control over financial
reporting.
Item 9B. Other Information
None
Item 10. Directors, Executive Officers of the
Registrant and Corporate Governance
In
accordance with Instruction G(3) of Form 10-K, the information required by this
item is incorporated herein by reference to the Proxy Statement. The
Proxy Statement will be filed not later than April 27, 2009 with respect to its
2009 annual meeting of shareholders, except for the information regarding the
executive officers of the Company. Information regarding
executive officers is included in Part I of this report under the caption
"Executive Officers of the Registrant."
Item 11. Executive Compensation
In
accordance with Instruction G(3) of Form 10-K, the information required by this
Item is incorporated herein by reference to the Proxy Statement (see Item 10
above).
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
In
accordance with Instruction G(3) of Form 10-K, the information required by this
Item is incorporated herein by reference to the Proxy Statement (see Item 10
above).
Item 13. Certain Relationships and Related
Transactions, and Director Independence
In
accordance with Instruction G(3) of Form 10-K, the information required by this
Item is incorporated herein by reference to the Proxy Statement (see Item 10
above).
Item 14. Principal Accounting Fees and
Services
In
accordance with Instruction G(3) of Form 10-K, the information required by this
Item is incorporated herein by reference to the Proxy Statement (see Item 10
above).
Item 15. Exhibits, Financial Statement
Schedules
(a)(1)
Financial Statements
See Index
to Consolidated Financial Statements on page 64.
(2) Financial Statement
Schedules
The
information required by Schedule II, Valuation and Qualifying
Accounts, is included in Note 6 to the Consolidated Financial Statements,
Casualty, Environmental and Other Reserves. All other financial
statement schedules are not applicable.
(3)
Exhibits
|
2.1
|
Distribution
Agreement, dated as of July 26, 2004, by and among CSX Corporation, CSX
Transportation, Inc., CSX Rail Holding Corporation, CSX Northeast Holding
Corporation, Norfolk Southern Corporation, Norfolk Southern Railway
Company, CRR Holdings LLC, Green Acquisition Corp., Conrail Inc.,
Consolidated Rail Corporation, New York Central Lines LLC, Pennsylvania
Lines LLC, NYC Newco, Inc. and PRR Newco, Inc. (incorporated herein by
reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
filed with the Commission on September 2,
2004)
|
|
3.1
|
Amended
and Restated Articles of Incorporation of the Registrant (incorporated
herein by reference to Exhibit 3.1 to the Registrant's Current Report on
Form 8-K filed with the Commission on December 14,
2004)
|
|
3.1(a)
|
Articles
of Amendment to CSX Corporation’s Amended and Restated Articles of
Incorporation of the Registrant (incorporated herein by reference to
Exhibit 5.03 to the Registrant's Current Report on Form 8-K filed with the
Commission on July 18, 2006)
|
|
3.2
|
Bylaws
of the Registrant, amended effective as of September 24, 2008
(incorporated herein by reference to Exhibit 3.2 of the Registrant's
Current Report on Form 8-K filed with the Commission on September 25,
2008)
|
|
|
Instruments Defining
the Rights of Security Holders, Including
Debentures:
|
|
4.1(a)
|
Indenture,
dated August 1, 1990, between the Registrant and The Chase Manhattan Bank,
as Trustee (incorporated herein by reference to the Registrant's Form SE,
dated September 7, 1990, filed with the
Commission)
|
|
4.1(b)
|
First
Supplemental Indenture, dated as of June 15, 1991, between the Registrant
and The Chase Manhattan Bank, as Trustee (incorporated herein by reference
to Exhibit 4(c) to the Registrant's Form SE, dated May 28, 1992, filed
with the Commission)
|
|
4.1(c)
|
Second
Supplemental Indenture, dated as of May 6, 1997, between the Registrant
and The Chase Manhattan Bank, as Trustee (incorporated herein by reference
to Exhibit 4.3 to the Registrant's Registration Statement on Form S-4
(Registration No. 333-28523) filed with the Commission on June 5,
1997)
|
|
4.1(d)
|
Third
Supplemental Indenture, dated as of April 22, 1998, between the Registrant
and The Chase Manhattan Bank, as Trustee (incorporated herein by reference
to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with
the Commission on May 12, 1998)
|
|
4.1(e)
|
Fourth
Supplemental Indenture, dated as of October 30, 2001, between the
Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein
by reference to Exhibit 4.1 to the Registrant's Report on Form 10-Q filed
with the Commission on November 7,
2001)
|
|
4.1(f)
|
Fifth
Supplemental Indenture, dated as of October 27, 2003 between the
Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein
by reference to Exhibit 4.1 to the Registrant's Report on Form 8-K filed
with the Commission on October 27,
2003)
|
|
4.1(g)
|
Sixth
Supplemental Indenture, dated as of September 23, 2004 between the
Registrant and JP Morgan Chase Bank, formerly The
Chase Manhattan Bank, as Trustee (incorporated herein by
reference to Exhibit 4.1 to the Registrant’s Report on Form 10-Q filed
with the Commission on November 3,
2004)
|
|
4.1(h)
|
Seventh
Supplemental Indenture, dated as of April 25, 2007, between the Registrant
and The Bank of New York (as successor to JP Morgan Chase Bank), as
Trustee (incorporated herein by reference to Exhibit 4.4 to the
Registrant's Report on Form 8-K filed with the Commission on April 26,
2007).
|
Pursuant
to Regulation S-K, Item 601(b)(4)(iii), instruments that define the rights of
holders of the Registrant's long-term debt securities, where the long-term debt
securities authorized under each such instrument do not exceed 10% of the
Registrant's total assets, have been omitted and will be furnished to the
Commission upon request.
Material
Contracts:
|
10.1**
|
CSX
Stock Plan for Directors (as amended through January 1, 2004)
(incorporated herein by reference to Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K filed with the Commission on March 10,
2004)
|
|
10.2*
**
|
CSX
Directors’ Pre-2005 Deferred Compensation Plan (as amended through January
8, 2008)
|
|
10.3*
**
|
CSX
Directors’ Deferred Compensation Plan effective January 1,
2005
|
|
10.4**
|
CSX
Directors' Charitable Gift Plan, as amended (incorporated herein by
reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K
filed with the Commission on March 4,
1994)
|
|
10.5**
|
CSX
Directors' Matching Gift Plan (as amended through December 31, 2003)
(incorporated herein by reference to Exhibit 10.5 to the Registrant's
Annual Report on Form 10-K filed with the Commission on March 10,
2004)
|
|
10.6**
|
Railroad
Retirement Benefits Agreement with M. J. Ward (incorporated herein by
reference to Exhibit 10.13 to the Registrant's Report on Form 10-K filed
with the Commission on February 26,
2003)
|
|
10.7**
|
Employment
Agreement with O. Munoz (incorporated herein by reference to Exhibit 10.1
to the Registrant's Report on Form 10-Q filed with the Commission on July
30, 2003)
|
|
10.8**
|
Form
of Employment Agreement with executive officers (incorporated herein by
reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K
filed with the Commission on January 6,
2005)
|
|
10.9**
|
Form
of Stock Option Agreement (incorporated herein by reference to Exhibit
10.17 of the Registrant's Report on Form 10-K filed with the Commission on
March 4, 2002)
|
|
10.10**
|
1987
Long-term Performance Stock Plan, as Amended and Restated effective April
25, 1996 (as amended through February 7, 2003) (incorporated herein by
reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
filed with the Commission on March 10,
2004)
|
|
10.11**
|
Deferred
Compensation Program for Executives of CSX Corporation and Affiliated
Companies (as amended through January 1, 1998) (incorporated herein by
reference to Exhibit 10.25 to the Registrant's Annual Report on Form 10-K
filed with the Commission on March 10,
2004)
|
|
10.12**
|
2002
Deferred Compensation Plan of CSX Corporation and Affiliated Corporations
(as amended through February 7, 2003) (incorporated herein by reference to
Exhibit 10.26 to the Registrant's Annual Report on Form 10-K filed with
the Commission on March 10, 2004)
|
|
10.13**
|
Supplementary
Savings Plan and Incentive Award Deferral Plan for Eligible Executives of
CSX Corporation and Affiliated Companies (as Amended through February 7,
2003) (incorporated herein by reference to Exhibit 10.27 to the
Registrant's Annual Report on Form 10-K filed with the Commission on March
10, 2004)
|
|
10.14**
|
Special
Retirement Plan of CSX Corporation and Affiliated Companies (as amended
through February 14, 2001) (incorporated herein by reference to Exhibit
10.23 to the Registrant's Report on Form 10-K filed with the Commission on
March 4, 2002)
|
|
10.15**
|
Supplemental
Retirement Benefit Plan of CSX Corporation and Affiliated Companies (as
amended through February 14, 2001) (incorporated herein by reference to
Exhibit 10.24 of the Registrant's Report on Form 10-K filed with the
Commission on March 4, 2002)
|
|
10.16**
|
Senior
Executive Incentive Compensation Plan (incorporated herein by reference to
Appendix B to the Registrant's Definitive Proxy Statement filed with the
Commission on March 17, 2000)
|
|
10.17*
**
|
CSX
Omnibus Incentive Plan (as Amended through December 12,
2007)
|
|
10.18**
|
1990
Stock Award Plan as Amended and Restated Effective February 14, 1996 (as
amended through September 8, 1999) (incorporated herein by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K filed with
the Commission on March 7, 2000)
|
|
10.19
|
Transaction
Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX
Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern
Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR
Holdings LLC, with certain schedules thereto (incorporated herein by
reference to Exhibit 10 to the Registrant’s Current Report on Form 8-K
filed with the Commission on July 8,
1997)
|
|
10.20
|
Amendment
No. 1, dated as of August 22, 1998, to the Transaction Agreement, dated as
of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc.,
Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation and CRR Holdings LLC (incorporated
herein by reference to Exhibit 10.1 to the Registrant's Current Report on
Form 8-K filed with the Commission on June 11,
1999)
|
|
10.21
|
Amendment
No. 2, dated as of June 1, 1999, to the Transaction Agreement, dated as of
June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc.,
Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation and CRR Holdings, LLC (incorporated
herein by reference to Exhibit 10.2 to the Registrant's Current Report on
Form 8-K filed with the Commission on June 11,
1999)
|
|
10.22
|
Amendment
No. 3, dated as of August 1, 2000, to the Transaction Agreement
by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern
Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated
Rail Corporation, and CRR Holdings LLC. (incorporated herein by reference
to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K
dated March 1, 2001)
|
|
10.23
|
Amendment
No. 4, dated and effective as of June 1, 1999, and executed in April
2004, to the Transaction Agreement, dated as of June 10, 1997, by and
among CSX Corporation, CSX Transportation, Inc., Norfolk Southern
Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated
Rail Corporation, and CRR Holdings LLC (incorporated herein by reference
to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K
filed with the Commission on August 6,
2004)
|
|
10.24
|
Amendment
No. 5, dated as of August 27, 2004, to the Transaction
Agreement, dated as of June 10, 1997, by and among CSX Corporation,
CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern
Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR
Holdings LLC (incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed with the Commission on
September 2, 2004)
|
|
10.25
|
Shared
Assets Area Operating Agreement for Detroit, dated as of June 1, 1999, by
and among Consolidated Rail Corporation, CSX Transportation, Inc. and
Norfolk Southern Railway Corporation, with exhibit thereto (incorporated
herein by reference to Exhibit 10.6 to the Registrant's Current Report on
Form 8-K filed with the Commission on June 11,
1999)
|
|
10.26
|
Shared
Assets Area Operating Agreement for North Jersey, dated as of June 1,
1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc.
and Norfolk Southern Railway Company, with exhibit thereto (incorporated
herein by reference to Exhibit 10.4 to the Registrant's Current Report on
Form 8-K filed with the Commission on June 11,
1999)
|
|
10.27
|
Shared
Assets Area Operating Agreement for southern Jersey/Philadelphia, dated as
of June 1, 1999, by and among Consolidated Rail Corporation, CSX
Transportation, Inc. and Norfolk Southern Railway Company, with exhibit
thereto (incorporated herein by reference to Exhibit 10.5 to the
Registrant's Current Report on Form 8-K filed with the Commission on June
11, 1999)
|
|
10.28
|
Monongahela
Usage Agreement, dated as of June 1, 1999, by and among CSX
Transportation, Inc., Norfolk Southern Railway Company, Pennsylvania Lines
LLC and New York Central Lines LLC, with exhibit thereto (incorporated
herein by reference to Exhibit 10.7 to the Registrant's Current Report on
Form 8-K filed with the Commission on June 11,
1999)
|
|
10.29
|
Tax
Allocation Agreement, dated as of August 27, 2004, by and among CSX
Corporation, Norfolk Southern Corporation, Green Acquisition Corp.,
Conrail Inc., Consolidated Rail Corporation, New York Central Lines LLC
and Pennsylvania Lines LLC (incorporated herein by reference to Exhibit
10.2 to the Registrant's Current Report on Form 8-K filed with the
Commission on September 2, 2004)
|
|
10.30**
|
Employment
Agreement with T. L. Ingram, dated as of March 15, 2004 (incorporated
herein by reference to Exhibit 10.1 to the Registrant's Report on Form
10-Q filed with the Commission on April 30,
2004)
|
|
10.31**
|
Restricted
Stock Award Agreement with T. L. Ingram (incorporated herein by reference
to Exhibit 10.1 to the Registrant's Report on Form 10-Q filed with the
Commission on July 29, 2004)
|
|
10.32**
|
Amendment
No. 1, dated as of December 13, 2004, to Employment Agreement with T. L.
Ingram, dated as of March 15, 2004 (incorporated herein by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the
Commission on December 14, 2004)
|
|
10.33**
|
Restricted
Stock Award Agreement with Ellen M. Fitzsimmons (incorporated herein by
reference to Exhibit 10.41 of the Registrant's Annual Report on Form 10-K
filed with the Commission on February 24,
2006)
|
|
10.34
|
Revolving
Credit Agreement, dated May 4, 2006 (incorporated herein by reference to
Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed with the
Commission on May 9, 2006)
|
|
10.35
|
Underwriting
agreement, dated April 20, 2007 (incorporated herein by reference to
Exhibit 1.1 to the Registrant's Current Report on Form 8-K filed with the
Commission on April 26, 2007)
|
|
10.36**
|
Long-term
Incentive Plan, dated May 1, 2007 (incorporated herein by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the
Commission on May 7, 2007)
|
|
10.37
|
Underwriting
agreement dated September 4, 2007 (incorporated herein by reference to
Exhibit 1.1 to the Registrant's Current Report on Form 8-K filed with the
Commission on September 10, 2007)
|
|
10.38
|
Underwriting
agreement dated December 10, 2007 (incorporated herein by reference to
Exhibit 1.1 to the Registrant's Current Report on Form 8-K filed with the
Commission on December 17, 2007)
|
|
10.39
|
Underwriting
agreement dated October 21, 2008 (incorporated herein by reference to
Exhibit 1.1 to the Registrant's Current Report on Form 8-K filed with the
Commission on October 24, 2008)
|
|
10.40
|
Underwriting
agreement dated January 14, 2009 (incorporated herein by reference to
Exhibit 1.1 to the Registrant's Current Report on Form 8-K filed with the
Commission on January 20, 2009)
|
|
21*
|
Subsidiaries
of the Registrant
|
|
23*
|
Consent
of Independent Registered Public Accounting
Firm
|
|
24*
|
Powers
of Attorney
|
|
31*
|
Rule 13a-14(a) Certifications
|
|
32.*
|
Section 1350 Certifications
|
|
99
*
|
Annual CEO Certification pursuant to NYSE Rule
303A.12(a).
|
|
|
* Filed
herewith
|
|
|
**
Management Contract or Compensatory Plan or
Arrangement
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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)
|
|||
|
Date:
February 13, 2009
|
By:
|
/s/ CAROLYN T. SIZEMORE | |
| Carolyn T. Sizemore | |||
|
Vice
President and Controller
(Principal Accounting Officer)
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on February 13, 2009.
|
Signature
|
Title
|
|
|
Chairman
of the Board, President, Chief
|
||
|
/s/
MICHAEL J. WARD
|
Executive
Officer and Director
|
|
|
Michael
J. Ward
|
(Principal
Executive Officer)
|
|
|
/s/
OSCAR MUNOZ
|
Executive
Vice President and Chief Financial
|
|
|
Oscar
Munoz
|
Officer
(Principal Financial Officer)
|
|
|
/s/
CAROLYN T. SIZEMORE
|
Vice
President and Controller
|
|
|
Carolyn
T. Sizemore
|
(Principal
Accounting Officer)
|
|
|
/s/
ELLEN M. FITZSIMMONS
|
Senior
Vice President - Law and Public Affairs
|
|
|
Ellen
M. Fitzsimmons
|
*Attorney-in-Fact
|
|
Signature
|
Title
|
|
|
|
||
|
*
|
Director
|
|
|
Donna
M. Alvarado
|
||
|
*
|
Director
|
|
|
Alexandre
Behring
|
||
|
*
|
Director
|
|
|
John
B. Breaux
|
||
|
*
|
Director
|
|
|
Steven
T. Halverson
|
||
|
|
||
|
*
|
Director
|
|
|
Christopher
Hohn
|
||
|
*
|
Director
|
|
|
Edward
J. Kelly, III
|
||
|
*
|
Director
|
|
|
Gilbert
H. Lamphere
|
||
|
*
|
Director
|
|
|
John
D. McPherson
|
||
|
|
||
|
*
|
Director
|
|
|
Timothy
T. O'Toole
|
||
|
|
||
|
*
|
Director
|
|
|
David
M. Ratcliffe
|
||
|
|
||
|
*
|
Director
|
|
|
Donald
J. Shepard
|