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Item 3. | CSX Q3 2017 Form 10-Q p.2
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Item 4. | | | |
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Item 5. | | | |
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Item 6. | | | |
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CSX Q1 2023 Form 10-Q p.2
CSX CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENTS (Unaudited)
(Dollars in millions, except per share amounts)
| | | | | | | | | | | |
| First Quarters | | |
| 2023 | 2022 | | | |
| | | | | |
Revenue | $ | 3,706 | | $ | 3,413 | | | | |
Expense | | | | | |
Labor and Fringe | 723 | | 692 | | | | |
Purchased Services and Other | 688 | | 675 | | | | |
Depreciation and Amortization | 393 | | 360 | | | | |
Fuel | 364 | | 331 | | | | |
Equipment and Other Rents | 82 | | 100 | | | | |
Gains on Property Dispositions | (8) | | (27) | | | | |
Total Expense | 2,242 | | 2,131 | | | | |
| | | | | |
Operating Income | 1,464 | | 1,282 | | | | |
| | | | | |
Interest Expense | (201) | | (179) | | | | |
Other Income - Net | 41 | | 26 | | | | |
Earnings Before Income Taxes | 1,304 | | 1,129 | | | | |
| | | | | |
Income Tax Expense | (317) | | (270) | | | | |
Net Earnings | $ | 987 | | $ | 859 | | | | |
| | | | | |
Per Common Share (Note 2) | | | | | |
Net Earnings Per Share, Basic | $ | 0.48 | | $ | 0.39 | | | | |
Net Earnings Per Share, Assuming Dilution | $ | 0.48 | | $ | 0.39 | | | | |
| | | | | |
| | | | | |
Average Shares Outstanding (In millions) | 2,054 | | 2,188 | | | | |
Average Shares Outstanding, Assuming Dilution (In millions) | 2,058 | | 2,193 | | | | |
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| | | | | | | | | | | | | |
| Third Quarters | | Nine Months |
| 2017 | 2016 | | 2017 | 2016 |
| | | | | |
Revenue | $ | 2,743 |
| $ | 2,710 |
| | $ | 8,545 |
| $ | 8,032 |
|
Expense | | | | | |
Labor and Fringe | 717 |
| 762 |
| | 2,249 |
| 2,307 |
|
Materials, Supplies and Other | 516 |
| 507 |
| | 1,573 |
| 1,576 |
|
Depreciation | 331 |
| 321 |
| | 978 |
| 953 |
|
Fuel | 205 |
| 174 |
| | 621 |
| 496 |
|
Equipment and Other Rents | 97 |
| 105 |
| | 282 |
| 315 |
|
Restructuring Charge (Note 1) | 1 |
| — |
| | 296 |
| — |
|
Total Expense | 1,867 |
| 1,869 |
| | 5,999 |
| 5,647 |
|
| | | | | |
Operating Income | 876 |
| 841 |
| | 2,546 |
| 2,385 |
|
| | | | | |
Interest Expense | (132 | ) | (139 | ) | | (406 | ) | (423 | ) |
Other Income - Net | 6 |
| 13 |
| | 19 |
| 28 |
|
Earnings Before Income Taxes | 750 |
| 715 |
| | 2,159 |
| 1,990 |
|
| | | | | |
Income Tax Expense | (291 | ) | (260 | ) | | (828 | ) | (734 | ) |
Net Earnings | $ | 459 |
| $ | 455 |
| | $ | 1,331 |
| $ | 1,256 |
|
| | | | | |
Per Common Share (Note 2) | | | | | |
Net Earnings Per Share, Basic | $ | 0.51 |
| $ | 0.48 |
| | $ | 1.45 |
| $ | 1.32 |
|
Net Earnings Per Share, Assuming Dilution | $ | 0.51 |
| $ | 0.48 |
| | $ | 1.45 |
| $ | 1.32 |
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| | | | | |
| | | | | |
Average Shares Outstanding (In millions) | 902 |
| 942 |
| | 916 |
| 952 |
|
Average Shares Outstanding, Assuming Dilution (In millions) | 906 |
| 943 |
| | 919 |
| 953 |
|
| | | | | |
| | | | | |
Cash Dividends Paid Per Common Share | $ | 0.20 |
| $ | 0.18 |
| | $ | 0.58 |
| $ | 0.54 |
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CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS (Unaudited)
(Dollars in millions, except per share amounts)millions)
| | | | | | | | | | | |
| First Quarters | | |
| 2023 | 2022 | | | |
Total Comprehensive Earnings (Note 10) | $ | 989 | | $ | 890 | | | | |
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| Third Quarters | | Nine Months |
| 2017 | 2016 | | 2017 | 2016 |
Total Comprehensive Earnings (Note 10) | $ | 467 |
| $ | 465 |
| | $ | 1,410 |
| $ | 1,282 |
|
See accompanying notes to consolidated financial statements.
CSX Q1 2023 Form 10-Q p.3
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| CSX Q3 2017 Form 10-Q p.3
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CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
| | | (Unaudited) | | | (Unaudited) | |
| September 30, 2017 | December 30, 2016 | | March 31, 2023 | December 31, 2022 |
ASSETS | ASSETS | ASSETS |
Current Assets: | | Current Assets: | |
Cash and Cash Equivalents | $ | 591 |
| $ | 603 |
| Cash and Cash Equivalents | $ | 1,291 | | $ | 1,958 | |
Short-term Investments | 113 |
| 417 |
| Short-term Investments | 178 | | 129 | |
Accounts Receivable - Net (Note 1) | 981 |
| 938 |
| |
Accounts Receivable - Net (Note 8) | | Accounts Receivable - Net (Note 8) | 1,377 | | 1,313 | |
Materials and Supplies | 392 |
| 407 |
| Materials and Supplies | 394 | | 341 | |
| Other Current Assets | 95 |
| 122 |
| Other Current Assets | 115 | | 108 | |
Total Current Assets | 2,172 |
| 2,487 |
| Total Current Assets | 3,355 | | 3,849 | |
| | | | |
Properties | 44,105 |
| 43,227 |
| Properties | 48,441 | | 48,105 | |
Accumulated Depreciation | (12,526 | ) | (12,077 | ) | Accumulated Depreciation | (14,148) | | (13,863) | |
Properties - Net | 31,579 |
| 31,150 |
| Properties - Net | 34,293 | | 34,242 | |
| | | | |
Investment in Conrail | 864 |
| 840 |
| |
Affiliates and Other Companies | 642 |
| 619 |
| |
Investment in Affiliates and Other Companies | | Investment in Affiliates and Other Companies | 2,313 | | 2,292 | |
Right-of-Use Lease Asset | | Right-of-Use Lease Asset | 489 | | 505 | |
Goodwill and Other Intangible Assets - Net | | Goodwill and Other Intangible Assets - Net | 500 | | 502 | |
Other Long-term Assets | 316 |
| 318 |
| Other Long-term Assets | 528 | | 522 | |
Total Assets | $ | 35,573 |
| $ | 35,414 |
| Total Assets | $ | 41,478 | | $ | 41,912 | |
| | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY |
Current Liabilities: | | Current Liabilities: | |
Accounts Payable | $ | 905 |
| $ | 806 |
| Accounts Payable | $ | 1,203 | | $ | 1,130 | |
Labor and Fringe Benefits Payable | 601 |
| 545 |
| Labor and Fringe Benefits Payable | 367 | | 707 | |
Casualty, Environmental and Other Reserves (Note 4) | 122 |
| 115 |
| Casualty, Environmental and Other Reserves (Note 4) | 151 | | 144 | |
| Current Maturities of Long-term Debt (Note 7) | 19 |
| 331 |
| Current Maturities of Long-term Debt (Note 7) | 11 | | 151 | |
Income and Other Taxes Payable | 322 |
| 129 |
| Income and Other Taxes Payable | 361 | | 111 | |
Other Current Liabilities | 106 |
| 114 |
| Other Current Liabilities | 228 | | 228 | |
Total Current Liabilities | 2,075 |
| 2,040 |
| Total Current Liabilities | 2,321 | | 2,471 | |
| | | | |
Casualty, Environmental and Other Reserves (Note 4) | 253 |
| 259 |
| Casualty, Environmental and Other Reserves (Note 4) | 287 | | 292 | |
Long-term Debt (Note 7) | 11,788 |
| 10,962 |
| Long-term Debt (Note 7) | 17,911 | | 17,896 | |
Deferred Income Taxes - Net | 9,789 |
| 9,596 |
| Deferred Income Taxes - Net | 7,605 | | 7,569 | |
Long-term Lease Liability | | Long-term Lease Liability | 478 | | 488 | |
Other Long-term Liabilities | 766 |
| 863 |
| Other Long-term Liabilities | 542 | | 571 | |
Total Liabilities | 24,671 |
| 23,720 |
| Total Liabilities | 29,144 | | 29,287 | |
| | | | |
Shareholders' Equity: | | Shareholders' Equity: | | |
Common Stock, $1 Par Value | 894 |
| 928 |
| Common Stock, $1 Par Value | 2,033 | | 2,066 | |
Other Capital | 227 |
| 138 |
| Other Capital | 587 | | 574 | |
Retained Earnings | 10,327 |
| 11,253 |
| Retained Earnings | 10,092 | | 10,363 | |
Accumulated Other Comprehensive Loss (Note 10) | (561 | ) | (640 | ) | Accumulated Other Comprehensive Loss (Note 10) | (386) | | (388) | |
Noncontrolling Interest | 15 |
| 15 |
| |
Non-controlling Minority Interest | | Non-controlling Minority Interest | 8 | | 10 | |
Total Shareholders' Equity | 10,902 |
| 11,694 |
| Total Shareholders' Equity | 12,334 | | 12,625 | |
Total Liabilities and Shareholders' Equity | $ | 35,573 |
| $ | 35,414 |
| Total Liabilities and Shareholders' Equity | $ | 41,478 | | $ | 41,912 | |
See accompanying notes to consolidated financial statements.
CSX Q1 2023 Form 10-Q p.4
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| CSX Q3 2017 Form 10-Q p.4
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CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW STATEMENTS (Unaudited)
(Dollars in millions)
| | | | | | | | |
| Three Months |
| 2023 | 2022 |
| | |
OPERATING ACTIVITIES | | |
Net Earnings | $ | 987 | | $ | 859 | |
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: | | |
Depreciation and Amortization | 393 | | 360 | |
Deferred Income Taxes | 35 | | 37 | |
Gains on Property Dispositions | (8) | | (27) | |
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| | |
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Other Operating Activities | (31) | | 4 | |
Changes in Operating Assets and Liabilities: | | |
Accounts Receivable | (63) | | (131) | |
Other Current Assets | (72) | | (40) | |
Accounts Payable | 70 | | 82 | |
Income and Other Taxes Payable | 266 | | 225 | |
Other Current Liabilities | (326) | | (70) | |
Net Cash Provided by Operating Activities | 1,251 | | 1,299 | |
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INVESTING ACTIVITIES | | |
Property Additions | (443) | | (331) | |
Purchases of Short-term Investments | (101) | | (19) | |
Proceeds from Sales of Short-term Investments | 53 | | — | |
Proceeds and Advances from Property Dispositions | 8 | | 8 | |
Business Acquisition, Net of Cash Acquired | (2) | | (9) | |
Other Investing Activities | 5 | | (17) | |
Net Cash Used In Investing Activities | (480) | | (368) | |
| | |
FINANCING ACTIVITIES | | |
Long-term Debt Repaid (Note 7) | (142) | | (6) | |
Dividends Paid | (226) | | (218) | |
Shares Repurchased | (1,067) | | (1,016) | |
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| | |
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Other Financing Activities | (3) | | 6 | |
Net Cash Used in Financing Activities | (1,438) | | (1,234) | |
| | |
Net Decrease in Cash and Cash Equivalents | (667) | | (303) | |
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CASH AND CASH EQUIVALENTS | | |
Cash and Cash Equivalents at Beginning of Period | 1,958 | | 2,239 | |
Cash and Cash Equivalents at End of Period | $ | 1,291 | | $ | 1,936 | |
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| Nine Months |
| 2017 | 2016 |
| | |
OPERATING ACTIVITIES | | |
Net Earnings | $ | 1,331 |
| $ | 1,256 |
|
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: | | |
Depreciation | 978 |
| 953 |
|
Restructuring Charge | 296 |
| — |
|
Cash Payments for Restructuring Charge | (147 | ) | — |
|
Deferred Income Taxes | 161 |
| 312 |
|
Other Operating Activities | (13 | ) | (51 | ) |
Changes in Operating Assets and Liabilities: | | |
Accounts Receivable | (78 | ) | 68 |
|
Other Current Assets | 47 |
| (58 | ) |
Accounts Payable | 102 |
| 94 |
|
Income and Other Taxes Payable | 180 |
| (25 | ) |
Other Current Liabilities | 4 |
| (61 | ) |
Net Cash Provided by Operating Activities | 2,861 |
| 2,488 |
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INVESTING ACTIVITIES | | |
Property Additions | (1,462 | ) | (1,590 | ) |
Purchase of Short-term Investments | (645 | ) | (410 | ) |
Proceeds from Sales of Short-term Investments | 957 |
| 1,070 |
|
Other Investing Activities | 71 |
| 37 |
|
Net Cash Used In Investing Activities | (1,079 | ) | (893 | ) |
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FINANCING ACTIVITIES | | |
Long-term Debt Issued (Note 7) | 850 |
| — |
|
Long-term Debt Repaid (Note 7) | (332 | ) | (19 | ) |
Dividends Paid | (530 | ) | (513 | ) |
Shares Repurchased | (1,763 | ) | (778 | ) |
Other Financing Activities | (19 | ) | (310 | ) |
Net Cash Used in Financing Activities | (1,794 | ) | (1,620 | ) |
| | |
Net Decrease in Cash and Cash Equivalents | (12 | ) | (25 | ) |
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CASH AND CASH EQUIVALENTS | | |
Cash and Cash Equivalents at Beginning of Period | 603 |
| 628 |
|
Cash and Cash Equivalents at End of Period | $ | 591 |
| $ | 603 |
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See accompanying notes to consolidated financial statements.
CSX Q1 2023 Form 10-Q p.5
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| CSX Q3 2017 Form 10-Q p.5
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|
CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (Unaudited)
(Dollars in millions)
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Three Months 2023 | Common Shares Outstanding (Thousands) | Common Stock and Other Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss)(a) | Non-controlling Minority Interest | Total Shareholders' Equity |
| | | | | | |
Balance December 31, 2022 | 2,066,367 | | $ | 2,640 | | $ | 10,363 | | $ | (388) | | $ | 10 | | $ | 12,625 | |
Comprehensive Earnings: | | | | | | |
Net Earnings | — | | — | | 987 | | — | | — | | 987 | |
Other Comprehensive Income | — | | — | | — | | 2 | | — | | 2 | |
Total Comprehensive Earnings | | | | | | 989 | |
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Common stock dividends, $0.11 per share | — | | — | | (226) | | — | | — | | (226) | |
Share Repurchases | (35,157) | | (35) | | (1,032) | | — | | — | | (1,067) | |
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Stock Option Exercises and Other | 1,865 | | 15 | | — | | — | | (2) | | 13 | |
Balance March 31, 2023 | 2,033,075 | | $ | 2,620 | | $ | 10,092 | | $ | (386) | | $ | 8 | | $ | 12,334 | |
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Three Months 2022 | Common Shares Outstanding (Thousands) | Common Stock and Other Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss)(a) | Non-controlling Minority Interest | Total Shareholders' Equity | | | |
| | | | | | | | | |
Balance December 31, 2021 | 2,201,787 | | $ | 2,268 | | $ | 11,630 | | $ | (408) | | $ | 10 | | 13,500 | | | | |
Comprehensive Earnings: | | | | | | | | | |
Net Earnings | — | | — | | 859 | | — | | — | | 859 | | | | |
Other Comprehensive Income | — | | — | | — | | 31 | | — | | 31 | | | | |
Total Comprehensive Earnings | | | | | | 890 | | | | |
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Common stock dividends, $0.10 per share | — | | — | | (218) | | — | | — | | (218) | | | | |
Share Repurchases | (29,365) | | (29) | | (987) | | — | | — | | (1,016) | | | | |
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Stock Option Exercises and Other | 1,831 | | 38 | | — | | — | | 1 | | 39 | | | | |
Balance March 31, 2022 | 2,174,253 | | $ | 2,277 | | $ | 11,284 | | $ | (377) | | $ | 11 | | $ | 13,195 | | | | |
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(a) Accumulated Other Comprehensive Loss balances shown above are net of tax. The associated taxes were $121 million and $99 million as of March 31, 2023, and March 31, 2022, respectively. For additional information, see Note 10, Other Comprehensive Income.
See accompanying notes to consolidated financial statements.
CSX Q1 2023 Form 10-Q p.6
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| |
NOTE 1. | Nature of Operations and Significant Accounting Policies |
NOTE 1. Nature of Operations and Significant Accounting Policies
Background
CSX Corporation (“CSX”), together with its subsidiaries (the("CSX" or the “Company”), based in Jacksonville, Florida, is one of the nation's leading transportation companies. The Company provides rail-based transportation services including traditional rail service, and the transport of intermodal containers and trailers.trailers, as well as other transportation services such as rail-to-truck transfers and bulk commodity operations.
CSX's principal operatingoperating subsidiary, CSX Transportation, Inc. (“CSXT”), provides an important link to the transportation supply chain through its approximately 21,00020,000 route mile rail network whichand serves major population centers in 2326 states east of the Mississippi River, the District of Columbia and the Canadian provinces of Ontario and Quebec. The Company's intermodal business links customers to railroads via trucks and terminals.
After a merger on July On June 1, 2017 with2022, CSX Real Property,completed its acquisition of Pan Am Systems, Inc. (“Pan Am”), a former wholly-owned CSX subsidiary,which is the parent company of Pan Am Railways, Inc. This acquisition expanded CSXT’s reach in the Northeastern United States. CSXT is nowalso responsible for the Company's real estate sales, leasing, acquisition and management and development activities. In addition, asactivities, substantially all real estate sales, leasing, acquisition and management and development activitiesof which are focused on supporting railroad operations, all results of these activities are included in operating income beginning in 2017. Previously, the results of these activities were classified as operating or non-operating based on the nature of the activity and were not material for any periods presented.operations.
Other entities
In addition to CSXT, the Company’s subsidiaries include Quality Carriers, Inc. ("Quality Carriers"), CSX Intermodal Terminals, Inc. (“CSX Intermodal Terminals”), Total Distribution Services, Inc. (“TDSI”), Transflo Terminal Services, Inc. (“Transflo”), CSX Technology, Inc. (“CSX Technology”) and other subsidiaries. Quality Carriers is the largest provider of bulk liquid chemicals truck transportation in North America. CSX Intermodal Terminals owns and operates a system of intermodal terminals, predominantly in the eastern United States and also performs drayage services (the pickup and delivery of intermodal shipments) for certain customers and trucking dispatch operations.customers. TDSI serves the automotive industry with distribution centers and storage locations. Transflo connects non-rail served customers to the many benefits of rail by transferring products from rail to trucks. The biggest Transflo markets are chemicals and agriculture, which includeincludes shipments of plastics and ethanol. CSX Technology and other subsidiaries provide support services for the Company.
Sale of Property Rights to the Commonwealth of Virginia
On March 26, 2021, the Company entered into a comprehensive agreement to sell certain property rights in three CSX-owned line segments to the Commonwealth of Virginia (“Commonwealth”) over three phases. The timing and amount of gains recognized were based on the allocation of fair value to each conveyance, the timing of conveyances and collectability. Over the course of this transaction, which was completed in 2022, total proceeds of $525 million were collected and total gains of $493 million were recognized. A gain of $20 million was recognized in first quarter 2022 related to the closing of the second phase.
CSX Q1 2023 Form 10-Q p.7
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Nature of Operations and Significant Accounting Policies, continued
Basis of Presentation
In the opinion of management, the accompanying consolidated financial statements contain all normal, recurring adjustments necessary to fairly present the following:
Consolidated incomeconsolidated financial statements forand accompanying notes. Where applicable, prior year information has been reclassified to conform to the nine months ended September 30, 2017 and September 23, 2016;
Consolidated comprehensive income statements for the nine months ended September 30, 2017 and September 23, 2016;
Consolidated balance sheets at September 30, 2017 and December 30, 2016; and
Consolidated cash flow statements for the nine months ended September 30, 2017 and September 23, 2016.
current presentation. Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted from these interim financial statements. CSX suggests that these financial statements be read in conjunction with the audited financial statements and the notes included in CSX's most recent annual report on Form 10-K and any subsequently filed current reports on Form 8-K.
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| CSX Q3 2017 Form 10-Q p.6
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Nature of Operations and Significant Accounting Policies, continued
Fiscal Year
ThroughThe Company's fiscal periods are based upon the second quarter 2017, CSX followed a 52/53 week fiscal reporting calendar with the last day of each reporting period ending on a Friday. On July 7, 2017 the Board of Directors of CSX approved a change in the fiscal reporting calendar from a 52/53 week year ending on the last Friday of December to a calendar year ending on December 31 each year, effective beginning with fiscal third quarter 2017. Related to the change in the fiscal calendar:
Fiscal year 2017 commenced on December 31, 2016, as the fiscal year 2016 ended on December 30, 2016 under the 52/53 week fiscal calendar.
The third quarter 2017 commenced on July 1, 2017, as the second quarter 2017 ended on June 30, 2017 under the 52/53 week fiscal calendar, and ended on September 30, 2017. Third quarter 2017 includes one more day of business results than third quarter 2016.
The fourth quarter 2017 will commence on October 1, 2017 and end on December 31, 2017. Fourth quarter 2017 will include six fewer days of business results than fourth quarter 2016, which contained an extra week under the 52/53 week fiscal calendar.
Fiscal year 2017 will include 366 days of activity, five fewer days than fiscal year 2016, which was a 53 week fiscal year that began on December 26, 2015 and ended December 30, 2016.
The Company does not expect that this change will materially impact comparability of the Company’s financial results for fiscal year 2016 and fiscal year 2017. Accordingly, the change to a calendar fiscal year will be made on a prospective basis and operating results for prior periods will not be adjusted. The Company will not be required to file a transition report because this change is not deemed a change in fiscal year for purposes of reporting subject to Rule 13a-10 or Rule 15d-10 of the Securities Exchange Act of 1934 as the new fiscal year commences with the end of the prior fiscal year end and within seven days of the prior fiscal year end.
year. Except as otherwise specified, references to “third“first quarter(s)” or “nine“three months” indicate CSX's fiscal periods ending September 30, 2017March 31, 2023 and September 23, 2016,March 31, 2022, and references to "year-end" indicate the fiscal year ended December 30, 2016.31, 2022.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts on uncollectible amounts related to freight receivables, government reimbursement receivables, claims for damages and other various receivables. The allowance is based upon the creditworthiness of customers, historical experience, the age of the receivable and current market and economic conditions. Uncollectible amounts are charged against the allowance account. Allowance for doubtful accounts of $24 million and $33 million is included in the consolidated balance sheets as of September 30, 2017 and December 30, 2016, respectively.
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| CSX Q3 2017 Form 10-Q p.7
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Nature of Operations and Significant Accounting Policies, continued
New Accounting Pronouncements
In May 2017,March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") Compensation - Stock Compensation: Scope2020-04, Facilitation of Modification Accounting, which provides claritythe Effects of Reference Rate Reform on what changes to share-based awards are considered substantive and require modification accounting toFinancial Reporting. As the London Interbank Offered Rate ("LIBOR") will no longer be applied. This update is requiredavailable beginning with first quarter 2018 and should be applied prospectively to award modifications after the effective date. The Company early adoptedJuly 2023, this standard update in second quarter 2017provides practical expedients for contract modifications made as part of the transition from LIBOR to alternative reference rates. The guidance was effective upon issuance and will apply it prospectivelyat present can generally be applied through December 31, 2024. As of March 31, 2023, the Company has not applied the practical expedient to any award modifications after the adoption date. The Company does not regularly modify the terms and conditions of share-based awards and does not believe this standard update will have a material effect on its financial condition, results of operations or liquidity.contracts.
In March 2017, the FASB issued ASU Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, whichrequires that only the service cost component of net periodic benefit costs be recorded as compensation cost in the operating expense section of the income statement. All other components of net periodic benefit cost (interest cost, expected return on plan assets and amortization of net loss) will be presented in other income - net. This standard update is effective beginning with the first quarter 2018 and must be applied retrospectively. The Company does not believe this standard update will have a material effect on its financial condition, results of operations or liquidity.
In March 2017, the FASB issued ASU Simplifying the Test for Goodwill Impairment, which eliminates step two, the calculation of the implied fair value of goodwill, from the goodwill impairment test. Impairment will be quantified in step one of the test as the amount by which the carrying amount exceeds the fair value. This standard update is effective beginning first quarter 2020 and must be applied prospectively. The Company does not believe this standard update will have a material effect on its financial condition, results of operations or liquidity.
In May 2014, the FASB issued ASU Revenue from Contracts with Customers, which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. Companies will need to use more judgment and estimates than under the guidance currently in effect, including estimating the amount of variable revenue to recognize over each identified performance obligation. Additional disclosures will be required to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts. CSX will adopt this standard update in first quarter 2018 and plans to use a modified retrospective method of adoption.
The FASB has also issued several amendments to the revenue standard, including clarification on accounting for principal versus agent considerations (i.e., reporting gross versus net), licenses of intellectual property and identifying performance obligations. These amendments do not change the core principle of the standard, but provide clarity and implementation guidance.
CSX Q1 2023 Form 10-Q p.8
|
| | |
| CSX Q3 2017 Form 10-Q p.8
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Nature of Operations and Significant Accounting Policies, continued
The Company is currently finalizing its review of the impact of adopting this new guidance and has developed a comprehensive implementation plan. In-depth reviews of commercial contracts have been completed and changes to processes and internal controls to meet the standard’s reporting and disclosure requirements have been identified and are being implemented. At this time, the Company does not believe this standard update will have a material effect on its financial condition, results of operations or liquidity. Freight revenue will continue to be recognized ratably over transit time. Additionally, the disaggregated revenue information required to be disclosed under this standard update is similar to the information currently included in the Results of Operations section of Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
In February 2016, the FASB issued ASU, Leases, which will require lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, and lessors to recognize a net lease investment. Additional qualitative and quantitative disclosures will also be required. This standard update is effective for CSX beginning with the first quarter 2019 and will be adopted using a modified retrospective method. Changes to processes and internal controls to meet the standard’s reporting and disclosure requirements have been identified and are being implemented. Software has been implemented that will assist in the recognition of additional assets and liabilities to be included on the balance sheet related to leases currently classified as operating leases with durations greater than twelve months, with certain allowable exceptions. The Company continues to evaluate the expected impact of this standard update on disclosures, but does not anticipate any material changes to operating results or liquidity.
Other Items
Management Workforce Reduction
Through an involuntary separation program with enhanced benefits to further its strategic objectives, CSX reduced its management workforce by approximately 950employees during 2017. The Company has been focused on driving efficiencies through process improvement and responding to business mix shifts. These management reductions were designed to further streamline general and administrative and operating support functions to speed decision making and further control costs. In April 2017, the involuntary separation program was essentially completed. This program extends separation benefits for certain members of management that could result in additional charges through first quarter 2018. The majority of separation benefits are paid from general corporate funds while certain benefits are paid through CSX’s qualified pension plans.
Reimbursement Arrangements
In June 2017, the Company and the Company's President and Chief Executive Officer, E. Hunter Harrison, executed a letter agreement providing for certain reimbursement arrangements. Pursuant to the letter agreement, the Company made a reimbursement payment to MR Argent Advisor LLC ("Mantle Ridge") of $55 million for funds previously paid to Mr. Harrison by Mantle Ridge. Further, the Company assumed Mantle Ridge’s obligation to pay Mr. Harrison, prior to March 15, 2018, a lump sum cash amount of $29 million in respect of other forfeited compensation from his previous employer, Canadian Pacific Railway Limited (“CP”). The Company also assumed Mantle Ridge’s tax indemnification obligations to Mr. Harrison, which enables him to remain in the same after-tax position as if he had not: (i) forfeited such compensation and benefits earned from CP; and (ii) received $55 million from Mantle Ridge.
|
| | |
| CSX Q3 2017 Form 10-Q p.9
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Nature of Operations and Significant Accounting Policies, continued
The ownership position of Mantle Ridge, a CSX shareholder, is detailed in the Company's Proxy Statement on Schedule 14A filed on April 20, 2017 and subsequent Form 4 filings with the SEC. The Vice-Chairman of CSX's Board of Directors, Paul C. Hilal, founded and controls Mantle Ridge and each of its related entities. At the Company's 2017 annual meeting of shareholders held on June 5, 2017, the Company's shareholders approved, on an advisory basis, with approximately 93 percent of the vote, the Company undertaking such reimbursement arrangements.
Restructuring Charge
In first quarter 2017, the former CEO and President of the Company announced their retirements, and the terms of their unvested equity awards were modified to permit prorated vesting through May 31, 2018. The total restructuring charge includes costs related to the management workforce reduction, reimbursement arrangements, the proration of equity awards and other advisory costs related to the leadership transition. Future charges related to this restructuring are not expected to be material. Expenses related to the management workforce reduction and other costs are shown in the following table.
|
| | | | | | | | | | | | |
| 2017 |
(Dollars in millions) | First Quarter | Second Quarter | Third Quarter | Year-to-Date |
Severance | $ | 81 |
| $ | 10 |
| $ | — |
| $ | 91 |
|
Pension, Other Post-retirement Benefit and Other Non-cash Charges | 68 |
| 10 |
| — |
| 78 |
|
Relocation | 6 |
| 2 |
| — |
| 8 |
|
Subtotal Management Workforce Reduction | $ | 155 |
| $ | 22 |
| $ | — |
| $ | 177 |
|
Reimbursement Arrangements | — |
| 84 |
| — |
| 84 |
|
Non-cash Executive Equity Awards Proration | 8 |
| 16 |
| — |
| 24 |
|
Other Charges Including Fees Related to Shareholder Matters | 10 |
| — |
| 1 |
| 11 |
|
Total Restructuring Charge | $ | 173 |
| $ | 122 |
| $ | 1 |
| $ | 296 |
|
Charges and payments related to the management workforce reduction and other costs are shown in the following table.
|
| | | | | | | | | | | | |
(Dollars in millions) | 2017 Charges | 2017 Payments | Non-cash Items | Liability 9/30/2017 |
Severance | $ | 91 |
| $ | (77 | ) | — |
| $ | 14 |
|
Pension, Other Post-retirement Benefit and Other Non-cash Charges (a) | 78 |
| — |
| (78 | ) | — |
|
Relocation | 8 |
| (4 | ) | — |
| 4 |
|
Subtotal Management Workforce Reduction | $ | 177 |
| $ | (81 | ) | $ | (78 | ) | $ | 18 |
|
Reimbursement Arrangements | 84 |
| (55 | ) | — |
| 29 |
|
Non-cash Executive Equity Awards Proration | 24 |
| — |
| (24 | ) | — |
|
Other Charges Including Fees Related to Shareholder Matters | 11 |
| (11 | ) | — |
| — |
|
Total Restructuring Charge | $ | 296 |
| $ | (147 | ) | $ | (102 | ) | $ | 47 |
|
(a)The majority of non-cash items are related to certain benefits paid through CSX's qualified pension plans.
|
| | |
| CSX Q3 2017 Form 10-Q p.10
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2. Earnings Per Share
The following table sets forth the computation of basic earnings per share and earnings per share, assuming dilution:dilution.
| | | | | | | | | | | |
| First Quarters | | |
| 2023 | 2022 | | | |
Numerator (Dollars in millions): | | | | | |
Net Earnings | $ | 987 | | $ | 859 | | | | |
| | | | | |
| | | | | |
| | | | | |
Denominator (Units in millions): | | | | | |
Average Common Shares Outstanding | 2,054 | | 2,188 | | | | |
Other Potentially Dilutive Common Shares | 4 | | 5 | | | | |
Average Common Shares Outstanding, Assuming Dilution | 2,058 | | 2,193 | | | | |
| | | | | |
Net Earnings Per Share, Basic | $ | 0.48 | | $ | 0.39 | | | | |
Net Earnings Per Share, Assuming Dilution | $ | 0.48 | | $ | 0.39 | | | | |
|
| | | | | | | | | | | | | |
| Third Quarters | | Nine Months |
| 2017 | 2016 | | 2017 | 2016 |
Numerator (Dollars in millions): | | | | | |
Net Earnings | $ | 459 |
| $ | 455 |
| | $ | 1,331 |
| $ | 1,256 |
|
Dividend Equivalents on Restricted Stock | — |
| — |
| | (1 | ) | (1 | ) |
Net Earnings, Attributable to Common Shareholders | $ | 459 |
| 455 |
| | $ | 1,330 |
| 1,255 |
|
| | | | | |
Denominator (Units in millions): | | | | | |
Average Common Shares Outstanding | 902 |
| 942 |
| | 916 |
| 952 |
|
Other Potentially Dilutive Common Shares | 4 |
| 1 |
| | 3 |
| 1 |
|
Average Common Shares Outstanding, Assuming Dilution | 906 |
| 943 |
| | 919 |
| 953 |
|
| | | | | |
Net Earnings Per Share, Basic | $ | 0.51 |
| $ | 0.48 |
| | $ | 1.45 |
| $ | 1.32 |
|
Net Earnings Per Share, Assuming Dilution | $ | 0.51 |
| $ | 0.48 |
| | $ | 1.45 |
| $ | 1.32 |
|
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 and common stock equivalents outstanding adjusted for the effects of common stock that may be issued as a result of potentially dilutive instruments. CSX's potentially dilutive instruments are made up of equity awards which include long-term incentive awards,including performance units and employee stock options.
The Earnings Per Share Topic in the FASB's ASC requires CSX to include additional shares in the computation of earnings per share, assuming dilution. The additional shares included in diluted earnings per share represent the number of shares that would be issued if all of the above potentially dilutive instruments were converted into CSX common stock.
When calculating diluted earnings per share, this rule requires CSX to include the potential shares that would be outstanding if all outstanding stock options were exercised.exercised are included. This number is different from outstanding stock options which is included in Note 3, Share-Based Compensation, because it is offset by shares CSX could repurchase using the proceeds from these hypothetical exercises to obtain the common stock equivalent. Approximately 10 millionand2.4 million ofThe total average outstanding stock options for the third quarters ended September 30, 2017 and September 23, 2016, respectively,that were excluded from the diluted earnings per share calculation because their effect was antidilutive.antidilutive is in the table below.
Share Repurchases
In July 2017, the Board of Directors approved an additional $500 million of share repurchase authority under the share repurchase program announced in April 2017, bringing the total program size to $1.5 billion. As of October 2, 2017, the Company had completed all share repurchases under this program.
During the third quartersof 2017 and 2016, the Company repurchased approximately $1 billion, or 20 million shares, and $263 million, or 10 million shares, respectively. During the nine months of 2017 and 2016, the Company repurchased $1.8 billion, or 35 million shares, and $778 million, or 30 million shares, respectively.
| | | | | | | | | | | |
| First Quarters | | |
| 2023 | 2022 | | | |
Antidilutive Stock Options Excluded from Diluted EPS (Units in millions) | 4 | 1 | | | |
CSX Q1 2023 Form 10-Q p.9
|
| | |
| CSX Q3 2017 Form 10-Q p.11
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2. Earnings Per Share, continued
Management'sShare Repurchases
In July 2022, the share repurchase program announced in October 2020 was completed and the Company announced a $5 billion share repurchase program. Total repurchase authority remaining was $2.2 billion as of March 31, 2023.
Share repurchases may be made through a variety of methods including, but not limited to, open market purchases, purchases pursuant to Rule 10b5-1 plans, accelerated share repurchases and negotiated block purchases. The timing of share repurchases depends upon management's assessment of marketmarketplace conditions and other factors, guidesand the timing and volumeprogram remains subject to the discretion of repurchases.the Board of Directors. Future share repurchases are expected to be funded by cash on hand, cash generated from operations and debt issuances. Shares are retired immediately upon repurchase. In accordance with the Equity Topic in the ASC,Accounting Standards Codification ("ASC"), the excess of repurchase price over par value is recorded in retained earnings. Generally, retained earnings is only impacted by net earnings
During first quarters 2023 and dividends.2022, the Company engaged in the following repurchase activities:
| | | | | | | | | | | |
| First Quarters | | |
| 2023 | 2022 | | | |
Shares Repurchased (Millions) | 35 | | 29 | | | | |
Cost of Shares (Dollars in millions) | $ | 1,067 | | $ | 1,016 | | | | |
Dividend Increase
On February 14, 2023, the Company's Board of Directors authorized a 10% increase in the quarterly cash dividend to $0.11 per common share effective March 2023.
CSX Q1 2023 Form 10-Q p.10
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. Stock Plans and Share-Based Compensation
Under CSX's share-based compensation plans, awards consist of performance units, restricted stock awards,options and restricted stock units and stock options for management and stock grants for directors. Awards granted under the various programs are determined and approved by the Compensation Committee of the Board of Directors or, in certain circumstances, by the Chief Executive OfficerShare-based compensation expense 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.
Share-basedunder share-based compensation expenseplans is measured using the fair value of the award on the grant date and is recognized on a straight-line basis over the service period of the respective award. Alternatively, expense is recognized upon death or over an accelerated service period for retirement-eligible employees whose agreements allow for continued vesting upon retirement. Forfeitures are recognized as they occur. Total pre-tax expense and income tax benefits associated with share-based compensation and its related income tax benefit isare shown in the table below. The year over year increase in expense related to performance unitsIncome tax benefits include impacts from option exercises and stock options is primarily due to modifications to the termsvesting of awards (see Equity Award Modificationsbelow) and higher expected award payouts.other equity awards.
| | | | | | | | | | | |
| First Quarters | | |
(Dollars in millions) | 2023 | 2022 | | | |
Share-Based Compensation Expense: | | | | | |
Restricted Stock Units | $ | 4 | | $ | 6 | | | | |
Performance Units | 3 | | 20 | | | | |
Stock Options | 3 | | 7 | | | | |
Stock Awards for Directors | 2 | | 2 | | | | |
Employee Stock Purchase Plan | 1 | | 1 | | | | |
Total Share-Based Compensation Expense | $ | 13 | | $ | 36 | | | | |
Income Tax Benefit | $ | 4 | | $ | 9 | | | | |
|
| | | | | | | | | | | | | |
| Third Quarters | | Nine Months |
(Dollars in millions) | 2017 | 2016 | | 2017 | 2016 |
| | | | | |
Share-Based Compensation Expense | | | | | |
Performance Units | $ | 3 |
| $ | 5 |
| | $ | 41 |
| $ | 9 |
|
Stock Options | 14 |
| 2 |
| | 47 |
| 5 |
|
Restricted Stock Units and Awards | 2 |
| 2 |
| | 11 |
| 8 |
|
Stock Awards for Directors | — |
| — |
| | 2 |
| 2 |
|
Total Share-Based Compensation Expense | $ | 19 |
| $ | 9 |
| | $ | 101 |
| $ | 24 |
|
Income Tax Benefit | $ | 7 |
| $ | 3 |
| | $ | 32 |
| $ | 9 |
|
Long-term Incentive Plan
InOn February 2017,15, 2023, the Company granted approximately 600 thousand performance units to certain employeesthe following awards under a new long-term incentive plan ("LTIP") for the years 20172023 through 2019,2025, which was adopted under the CSX 2019 Stock and Incentive Award Plan. Payouts
| | | | | | | | |
| Granted | Weighted Avg. Fair Value |
| | |
| | |
| | |
Performance Units | 680 | $ | 32.77 | |
Restricted Stock Units | 648 | 31.67 |
Stock Options | 1,067 | 9.86 |
CSX Q1 2023 Form 10-Q p.11
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. Stock Plans and return on assets in each case excluding non-recurring items as disclosed in the Company's financial statements. The cumulative operating ratio and average return on assets over the plan period will each comprise 50% of the payout and will be measured independently of the other.Share-Based Compensation, continued
Grants were made in performance units, with each unit representing the right to receive one share of CSX common stock, and payoutsPerformance Units
Payouts will be made in CSX common stock. Thestock with a payout range for most participants will be between 0% and 200% of the target awards depending on Company performance against predetermined goals. Payouts for certain executive officers are subject to formulaic upward or downward adjustment by up to 30%25%, capped at an overall payout of 250%, based upon the Company's total shareholder return relative to specified comparable groups.groups over the performance period. The fair values of performance units granted to certain executive officers were calculated using a Monte-Carlo simulation model.
Measurement against goals related to both average annual operating income growth and CSX Cash Earnings ("CCE"), in each case excluding non-recurring items as defined in the plan, will each comprise 50% of the payout. As defined under the plan, CCE is a cash-flow based measure of economic profit that incentivizes strategic investments earning more than the required return and is calculated as CSX’s gross cash earnings (after-tax EBITDA) minus the required return on gross operating assets.
|
| | |
| CSX Q3 2017 Form 10-Q p.12
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. Share-Based Compensation, continued
Stock Options
Also, in February 2017, the Company granted approximately 1.3 million stock options along with the corresponding LTIP. The fair value of stock options on the date of grant was $12.54 per option which was calculated using the Black-Scholes valuation model. Stock options have beenwere granted with ten-year terms and vest over three years afterin equal installments each year on the date of grant. The exercise price for stock options granted equals the closing market priceanniversary of the underlying stock on the date of grant.grant date. These awards are time-based and are not based upon attainment of performance goals. The fair values of stock option awards were estimated at the grant date using the Black-Scholes valuation model.
Restricted Stock Units
Finally, in February 2017, the Company granted approximately 300 thousand restricted stock units along with the corresponding LTIP. The restricted stock units awarded vest over three years after the date of grant. Participants receive cash dividend equivalentsin equal installments each year on the unvested shares duringanniversary of the restriction period.grant date and are settled in CSX common stock on a one-for-one basis. These awards are time-based and are not based upon CSX's attainment of performance goals.
For more information related to the Company's other outstanding long-term incentive compensation, see CSX's most recent annual report on Form 10-K.
CEO Stock Option Award
In March 2017, the Company granted 9 million stock options to the incoming CEO at a fair value of $12.88 per option calculated using the Black-Scholes valuation model. These options were granted with a ten-year term and an exercise price equal to the closing market price of the underlying stock on the date of grant. Half of the options, or 4.5 million, will vest on the CEO's service anniversary in equal annual installments over four years. The other half will vest based on achievement of performance targets related to both operating ratio and earnings before interest, taxes, depreciation and amortization adjusted for certain items.
Fair Value of All Stock Option Awards
No stock option awards were granted during third quarters 2017 and 2016. The fair values of all stock option awards during the nine months ended September 30, 2017, including those granted along with 2017 - 2019 LTIP and the CEO stock option award, were estimated at the grant date with the following weighted average assumptions:
CSX Q1 2023 Form 10-Q p.12
|
| | | | | | | |
| | Nine Months |
| | 2017 | 2016 |
Weighted-average grant date fair value | | $ | 12.83 |
| $ | 4.68 |
|
| | | |
Stock options valuation assumptions: | | | |
Annual dividend yield | | 1.5 | % | 3.0 | % |
Risk-free interest rate | | 2.2 | % | 1.4 | % |
Annualized volatility | | 27.1 | % | 27.3 | % |
Expected life (in years) | | 6.3 |
| 6.5 |
|
| | | |
Other pricing model inputs: | | | |
Weighted-average grant-date market price of CSX stock (strike price) | | $ | 49.60 |
| $ | 24.13 |
|
|
| | |
| CSX Q3 2017 Form 10-Q p.13
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. Share-Based Compensation, continued
Equity Award Modifications
The terms of performance units, restricted stock units and stock options granted as part of the Company's long-term share-based compensation plans typically require participants to be employed through the final day of the respective performance or vesting period as applicable, except in the case of death, disability or retirement. As part of an enhanced severance benefit under the management streamlining and realignment initiative discussed in Note 1, unvested performance units, restricted stock units and stock options for separated employees not eligible for retirement were permitted to vest on a pro-rata basis.
Additionally, the terms of unvested equity awards for the former CEO and President were modified prior to their retirements on March 6, 2017 to permit prorated vesting through May 31, 2018. The terms were modified in exchange for each agreeing to serve in an advisory capacity upon request until May 31, 2017, and waiving various rights and claims, including the cancellation of their respective change of control agreements with the Company.
Award modifications impacted approximately 70 employees and resulted in an increase to share-based compensation expense for revaluation of the affected awards of $31 million for the nine months ended September 30, 2017. No significant award modifications took place in third quarter 2017.
NOTE 4. Casualty, Environmental and Other Reserves
Casualty,Personal injury and environmental and other reserves are considered critical accounting estimates due to the need for significant management judgment. TheyCasualty, environmental and other reserves are provided for in the consolidated balance sheets as shown in the table below:below.
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 30, 2016 |
(Dollars in millions) | Current | Long-term | Total | | Current | Long-term | Total |
| | | | | | | |
Casualty: | | | | | | | |
Personal Injury | $ | 45 |
| $ | 120 |
| $ | 165 |
| | $ | 46 |
| $ | 124 |
| $ | 170 |
|
Occupational(a) | 4 |
| 55 |
| 59 |
| | 7 |
| 52 |
| 59 |
|
Total Casualty | 49 |
| 175 |
| 224 |
| | 53 |
| 176 |
| 229 |
|
Environmental | 43 |
| 46 |
| 89 |
| | 42 |
| 53 |
| 95 |
|
Other | 30 |
| 32 |
| 62 |
| | 20 |
| 30 |
| 50 |
|
Total | $ | 122 |
| $ | 253 |
| $ | 375 |
| | $ | 115 |
| $ | 259 |
| $ | 374 |
|
| |
(a)
| Occupational reserves include asbestos-related diseases and occupational injuries. |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(Dollars in millions) | Current | Long-term | Total | | Current | Long-term | Total |
| | | | | | | |
Casualty: | | | | | | | |
Personal Injury | $ | 40 | | $ | 87 | | $ | 127 | | | $ | 40 | | $ | 86 | | $ | 126 | |
Occupational | 10 | | 56 | | 66 | | | 10 | | 58 | | 68 | |
Total Casualty | 50 | | 143 | | 193 | | | 50 | | 144 | | 194 | |
Environmental | 53 | | 109 | | 162 | | | 53 | | 108 | | 161 | |
Other | 48 | | 35 | | 83 | | | 41 | | 40 | | 81 | |
Total | $ | 151 | | $ | 287 | | $ | 438 | | | $ | 144 | | $ | 292 | | $ | 436 | |
These liabilities are accrued when probable and reasonably estimable and probable in accordance with the Contingencies Topic in the ASC. Actual settlements and claims received could differ, and final outcomes of these matters cannot be predicted with certainty. Considering the legal defenses currently available, the liabilities that have been recorded and other factors, it is the opinion of management that none of these items individually, when finally resolved, will have a material adverse effect on the Company's financial condition, results of operations or liquidity. Should a number of these items occur in the same period, however, their combined effect could be material in that particular period.
|
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| CSX Q3 2017 Form 10-Q p.14
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4. Casualty, Environmental and Other Reserves, continued
Casualty
Casualty reserves of $224$193 million and $229$194 million as of September 30, 2017March 31, 2023 and December 30, 2016,31, 2022, respectively, represent accruals for personal injury, occupational disease and occupational injury claims.claims primarily related to railroad operations. The Company's self-insured retention amount for thesecasualty claims is $50$100 million per occurrence. Currently, no individual claim is expected to exceed the self-insured retention amount. In accordance with the Contingencies Topic in the ASC, to the extent the value of an individual claim exceeds the self-insured retention amount, the Company would present the liability on a gross basis with a corresponding receivable for insurance recoveries. These reserves fluctuate based upon the timing of payments as well as changes in estimate. Actual results may vary from estimates due to the number, type and severity of the injury, costs of medical treatments and uncertainties in litigation. Most of the Company's casualty claims relate to CSXT unless otherwise noted below. Defense and processing costs, which historically have been insignificant and are anticipated to be insignificant in the future, are not included in the recorded liabilities.
Personal Injury
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 current or former 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 actuary to assist management in assessing the value of personal injury claims. An analysis is performed by the actuary quarterlyquarterly and is reviewed by management. This analysis for the quarter resulteddid not result in an immateriala material adjustment to the personal injury reserve. The methodology used by the actuary includes a development factor to reflect growth or reductionreserve in the value of these personal injury claims. It is based largely on CSXT's historical claims and settlement experience.quarters ended March 31, 2023 or March 31, 2022.
Occupational
Occupational reserves represent liabilities for occupational disease and injury claims. Occupational disease claims arise primarily from allegations of exposure to asbestos in the workplace. Occupational injury claims arisearising from allegations of exposure to certain other materials in the workplace such(such as solvents, soaps, chemicals (collectively referred to as “irritants”) and diesel fuels (like exhaust fumes), past exposure to asbestos or allegations of chronic physical injuries resulting from work conditions such(such as repetitive stress injuries.
injuries). The greatest possible exposureCompany retains an independent actuary to asbestos for employees resulted from work conducted in and around steam locomotive engines that were largely phased out beginning aroundanalyze the 1950s. Other types of exposures, however, including exposure from locomotive component parts and building materials, continued until these exposures were substantially eliminated by 1985. Diseases associated with asbestos typically have long latency periods (amount of time between exposure to asbestos and the onset of the disease) which can range from 10 to 40 years after exposure.
Management reviews asserted asbestos claims quarterly. Unasserted or incurred but not reported ("IBNR") asbestos claims are analyzed by a third-party specialist and reviewed by management annually. CSXT’sCompany’s historical claim filings, settlementsettlement amounts, and dismissal rates are analyzed to determineassist in determining future anticipated claim filing rates and average settlement values for asbestos claims reserves.values. This analysis is performed by the actuary and reviewed by management quarterly. The potentially exposed population is estimated by using CSXT’s employment records and industry data. From this analysis did not result in a material adjustment to the specialist estimatesoccupational reserve in the IBNR claims liabilities.quarters ended March 31, 2023 or March 31, 2022.
CSX Q1 2023 Form 10-Q p.13
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| CSX Q3 2017 Form 10-Q p.15
|
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4. Casualty, Environmental and Other Reserves, continued
Environmental
Environmental reserves were $89 $162 million and $95$161 million as of September 30, 2017March 31, 2023, and December 30, 2016,31, 2022, respectively. 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 219240 environmentally impaired sites. Many of these are, or may be, subject to remedial action under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), also known as the Superfund Law, or similar state statutes. Most of these proceedings arose from environmental conditions on properties used for ongoing or discontinued railroad operations. A number of these proceedings, however, are based on allegations that the Company, or its predecessors, sent hazardous substances to facilities owned or operated by others for treatment, recycling or disposal. In addition, some of the Company's land holdings were leased to others for commercial or industrial uses that may have resulted in releases of hazardous substances or other regulated materials onto the property and could give rise to proceedings against the Company.
In any such proceedings, the Company is subject to environmental clean-up and enforcement actions under the Superfund Law, as well as similar state laws that may impose joint and several liability for clean-up and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct. These costs could be substantial.
In accordance with the Asset Retirement and Environmental Obligations Topic in the ASC, theThe Company reviews its role with respect to each site identified at least quarterly, 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.
quarterly. Based on themanagement's review process, the Company hasamounts have been recorded amounts to cover contingent anticipated future environmental remediation costs with respect to each site to the extent such costs are reasonably estimable and probable. The recorded liabilities for estimated future environmental costs are undiscounted. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. Payments related to these liabilities are expected to be made over the next several years. Environmental remediation costs are included in materials, suppliespurchased services and other on the consolidated income statement.statements.
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 additional exposure, the amount and materiality of which cannot presently be reasonably estimated. Based upon information currently available, however, the Company believes its environmental reserves accurately reflect the estimated cost of remedial actions currently required.
Other
Other reserves were $83 million and $81 million as of March 31, 2023 and December 31, 2022, respectively. Other reserves include liabilities for various claims, such as automobile, property, general liability, workers' compensation and longshoremen disability claims.
CSX Q1 2023 Form 10-Q p.14
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| CSX Q3 2017 Form 10-Q p.16
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4. Casualty, Environmental and Other Reserves, continued
Other
Other reserves of $62 million and $50 million as of September 30, 2017 and December 30, 2016, respectively, include liabilities for various claims, such as property, automobile and general liability. Also included in other reserves are longshoremen disability claims related to a previously owned international shipping business (these claims are in runoff) as well as claims for current port employees.
NOTE 5. Commitments and Contingencies
Purchase Commitments
CSXT has a commitment under a long-term maintenance program agreement that covers a portion of CSXT’s fleet of locomotives. The program costs are based on the maintenance cycle for each covered locomotive, which is determined by the asset's age and type. Expected future costs may change as required maintenance schedules are revised and locomotives are placed into or removed from service. Under CSXT’s current obligations, the agreement will expire no earlier than 2031. On August 9, 2017, the Company exercised certain rights under the agreement, which resulted in a reduction of the locomotive fleet covered from 50% as of December 30, 2016 to an estimated 34% of locomotives beginning August 2018. As a result, the total remaining payments decreased from approximately $5.0 billion at December 30, 2016 to an estimated $1.7 billion at September 30, 2017.
Insurance
The Company maintains numerous insurance programs with substantial limits for property damage, (which includesincluding resulting business interruption)interruption, and third-party liability. A certain amount of risk is retained by the Company on each ofinsurance program. Under its property insurance program, the property and liability programs. The Company has a $25retains all risk up to $100 million retention per occurrence for the non-catastrophic property program (such as a derailment)losses from floods and a $50named windstorms and up to $75 million retention per occurrence for other property losses. For third-party liability claims, the liability and catastrophic property programs (such as hurricanes and floods).Company retains all risk up to $100 million per occurrence. As CSX negotiates insurance coverage above its full self-retention amounts, it retains a percentage of risk at various layers of coverage. While the Company believes its insurance coverage is adequate, future claims could exceed existing insurance coverage or insurance may not continue to be available at commercially reasonable rates.
Legal
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 fuel surcharge practices, tax matters, environmental and hazardous material exposure matters, FELA and labor claims by current or former employees, other personal injury or property 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 reasonably determined,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 management that none of these pending items is likely to 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 that particular period.
The Company is able to estimate a range of possible loss for certain legal proceedings for which a loss is reasonably possible in excess of reserves established. The Company has estimated this range to be $2be $3 million to $116$22 million in aggregate at September 30, 2017.March 31, 2023. This estimated aggregate range is based upon currently available information and is subject to significant judgment and a variety of assumptions. Accordingly, the Company's estimate will change from time to time, and actual losses may vary significantly from the current estimate.
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| CSX Q3 2017 Form 10-Q p.17
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. Commitments and Contingencies, continued
Fuel Surcharge Antitrust Litigation
In May 2007, class action lawsuits were filed against CSXT and three otherother U.S.-based Class I railroads alleging that the defendants' fuel surcharge practices relating to contract and unregulated traffic resulted from an illegal conspiracy in violation of antitrust laws. In November 2007, theThe class action lawsuits were consolidated into one case in federal court in the District of Columbia, where they are now pending. The suit seeks treble damages allegedly sustained by purported class members as well as attorneys' fees and other relief. Plaintiffs are expected to allege damages at least equal to the fuel surcharges at issue.
Columbia. In June 2012,2017, the District Court certified the case as aissued its decision denying class action. The decision was not a ruling on the merits of plaintiffs' claims, but rather a decision to allow the plaintiffs to seek to prove the case as a class. The defendant railroads petitionedcertification. On August 16, 2019, the U.S. Court of Appeals for the D.C. Circuit for permission to appealaffirmed the District Court'sCourt’s ruling. The consolidated case is now moving forward without class certification decision. In August 2013, the D.C. Circuit issued a decision vacatingcertification. Although the class certification decision and remandedwas not certified, individual shippers have since brought claims against the case to the District Court to reconsider its class certification decision. On October 10, 2017, the District Court issued an order denying class certification. The District Court had delayed proceedings on the merits of the case pending the outcome of the class certification remand proceedings, and has not yet issuedrailroads, which have been consolidated into a further schedule in light of the order denying class certification.separate case.
CSXT believes that its fuel surcharge practices were arrived at and applied lawfully and that the case is without merit. Accordingly, the Company intends to defend itself vigorously. However, penalties for violating antitrust laws can be severe, and resolution of this matterthese matters individually or an unexpected adverse decision on the meritswhen aggregated could have a material adverse effect on the Company's financial condition, results of operations or liquidity in that particular period.
CSX Q1 2023 Form 10-Q p.15
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. Commitments and Contingencies, continued
Environmental
CSXT is indemnifying Pharmacia LLC, (formerlyformerly known as Monsanto Company)Company, ("Pharmacia") for certain liabilities associated with real estate located in Kearny, New Jersey along the Lower Passaic River (the “Property”). The Property, which was formerly owned by Pharmacia, is now owned by CSXT. CSXT's indemnification and defense duties arise with respect to several matters. The U.S. Environmental Protection Agency ("EPA"), using its CERCLA authority, seeks cleanupthe investigation and removal costs and other damages associated with the presencecleanup of hazardous substances in the 17-mile Lower Passaic River Study Area (the "Study Area”). CSXT, on behalf of Pharmacia, and a significant number of other potentially responsible parties are together conducting a Remedial Investigation and Feasibility Study of the Study Area pursuant to an Administrative Settlement Agreement and Order on Consent with the EPA. Pharmacia’s share of responsibility, indemnified by CSXT, for the investigation and cleanup costs of the Study Area may be determined through various mechanisms including (a) an allocation and settlement with EPA; (b) litigation brought by EPA against non-settling parties; or (c) litigation among the responsible parties.
In March 2016,For the lower 8 miles of the Study Area, EPA issued its Record of Decision detailing the agency’s mandated remedial process in March 2016. Approximately 80 parties, including Pharmacia, are participating in an EPA-directed allocation and settlement process to assign responsibility for the remedy selected for the lower 8 miles of the Study Area, which was basedArea. CSXT is participating in the EPA-directed allocation and settlement process on a Focused Feasibility Study.behalf of Pharmacia. For the remainder of the Study Area, EPA has estimated that it will takeselected an interim remedy in a Record of Decision dated September 28, 2021.
On March 2, 2022, EPA issued a Notice Letter to Pharmacia, Occidental Chemical Corporation and eight other parties alleging they are liable under Section 107(a) of CERCLA for releases or threatened releases of hazardous substances and requesting each party, individually or collectively, submit good faith offers to EPA in connection with the potentially responsibleStudy Area. CSX, on behalf of Pharmacia, responded to the Notice Letter and submitted a good faith offer to EPA on June 27, 2022, following meetings with a mediator from EPA’s Conflict Prevention and Resolution Center. Negotiations with EPA and other parties approximately ten years to completeresolve this matter continue. On March 2, 2023, the work. At a later date, EPA will select aissued an administrative order requiring Occidental Chemical Corporation to design the interim remedy for the remainder of the Study Area.
CSXT is also defending and indemnifying Pharmacia with regard to the Property in litigation filed by Occidental Chemical Corporation, which is seeking to recover various costs. These costs include costs for the remedial design of the lower 8 miles of the Study Area, and is expected to again seekas well as anticipated costs associated with the participationfuture remediation of private parties to implement the selected remedy using EPA’s CERCLA authorityentire Study Area. Alternatively, Occidental seeks to compel such participation, if necessary.
some, or all of the defendants to participate in the remediation of the Study Area. Pharmacia is one of approximately 110 defendants in this federal lawsuit filed by Occidental on June 30, 2018. CSXT is also defending and indemnifying Pharmacia in a cooperative natural resource damages assessment process related to the Property.
Based on currently available information, the Company does not believe any indemnification orits share of remediation costs potentially allocable to CSXTas determined by the EPA-directed allocation with respect to the Property and the Study Area would be material to the Company's financial condition, results of operations or liquidity.
CSX Q1 2023 Form 10-Q p.16
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| CSX Q3 2017 Form 10-Q p.18
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6. Employee Benefit Plans
The Company sponsors defined benefit pension plans principally for salaried, management personnel. For employees hired prior to January 1, 2003,The CSX Pension Plan, 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 determinedlargest plan based on a cash balance formula, which provides benefits by utilizing interest and pay credits based upon age, service and compensation.benefit obligation, was closed to new participants beginning in 2020.
In addition to these plans, the Company sponsors a post-retirement medical plan and a life insurance plan that provide certain benefits to full-time, salaried, management employees, hired prior to January 1, 2003, upon their retirement if certain eligibility requirements are met. Eligible retirees who are age 65 years or older (Medicare-eligible) are covered by a health reimbursement arrangement, which is an employer-funded account that can be used for reimbursement of eligible medical expenses. Eligible retirees younger than 65 years (non-Medicare eligible) are covered by a self-insured program partially funded by participating retirees. The life insurance plan is non-contributory.
The Company engages independentIndependent actuaries to compute the amounts of liabilities and expenses relating to these plans subject to the assumptions that the Company determines are appropriate based on historical trends, current market rates and future projections. These amounts are reviewed by management. The following table describesOnly the componentsservice cost component of expense / (income) related to net periodic benefit expense recordedcosts is included in labor and fringe expense on the consolidated income statement. All other components of net periodic benefit cost are included in other income - net.
|
| | | | | | | | | | | | | |
| Pension Benefits |
(Dollars in millions) | Third Quarters | | Nine Months |
| 2017 | 2016 | | 2017 | 2016 |
Service Cost | $ | 8 |
| $ | 12 |
| | $ | 28 |
| $ | 36 |
|
Interest Cost | 23 |
| 29 |
| | 69 |
| 89 |
|
Expected Return on Plan Assets | (43 | ) | (39 | ) | | (128 | ) | (118 | ) |
Amortization of Net Loss | 10 |
| 12 |
| | 31 |
| 36 |
|
Net Periodic Benefit Cost | $ | (2 | ) | $ | 14 |
| | $ | — |
| $ | 43 |
|
Special Termination Benefits - Management Workforce Reduction/Curtailment | — |
| — |
| | 57 |
| — |
|
Total Expense | $ | (2 | ) | $ | 14 |
| | $ | 57 |
| $ | 43 |
|
| | | | | |
| Other Post-retirement Benefits |
(Dollars in millions) | Third Quarters | | Nine Months |
| 2017 | 2016 | | 2017 | 2016 |
Service Cost | $ | — |
| $ | — |
| | $ | 1 |
| $ | 1 |
|
Interest Cost | 2 |
| 3 |
| | 6 |
| 9 |
|
Amortization of Net Loss | — |
| 1 |
| | — |
| 2 |
|
Net Periodic Benefit Cost | $ | 2 |
| $ | 4 |
| | $ | 7 |
| $ | 12 |
|
Special Termination Benefits - Management Workforce Reduction/Curtailment | — |
| — |
| | 13 |
| — |
|
Total Expense | $ | 2 |
| $ | 4 |
| | $ | 20 |
| $ | 12 |
|
| | | | | | | | | | | | | | | |
| Pension Benefits Cost |
| First Quarters | | |
(Dollars in millions) | 2023 | | 2022 | | | | |
Service Cost Included in Labor and Fringe | $ | 6 | | | $ | 8 | | | | | |
| | | | | | | |
Interest Cost | 28 | | | 16 | | | | | |
Expected Return on Plan Assets | (41) | | | (47) | | | | | |
Amortization of Net Loss | 7 | | | 12 | | | | | |
Total Included in Other Income - Net | (6) | | | (19) | | | | | |
| | | | | | | |
Net Periodic Benefit Credit | $ | — | | | $ | (11) | | | | | |
| | | | | | | |
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| CSX Q3 2017 Form 10-Q p.19
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6. Employee Benefit Plans, continued
As a result of the management workforce reductions in 2017, charges were incurred related to special termination benefits and curtailment costs. (For additional information regarding the management workforce reductions, see Note 1, Nature of Operations and Significant Accounting Policies.) In first quarter 2017, the Company remeasured the other post-retirement benefits obligation and recorded a curtailment loss of $13 million in restructuring charge on the income statement. The remeasurement did not have a material impact on the other post-retirement benefits obligation. In connection with this remeasurement, the effective discount rate assumption was updated to 3.59% from 3.71%.
In the second quarter of 2017, the Company remeasured the pension benefits obligation and pension plan assets and recorded a curtailment loss of $4 million in restructuring charge on the income statement. This remeasurement resulted in a decrease to the liabilities for pension benefits of approximately $86 million and a corresponding decrease to accumulated other comprehensive loss. In connection with this remeasurement, the effective discount rate assumption was updated to 3.94% from 4.08%. There were no other changes to assumptions used to value pension benefits obligation and expense.
Qualified pension plan obligations are funded in accordance with regulatory requirements and with an objective of meeting or exceeding minimum funding requirements necessary to avoid restrictions on flexibility of plan operation and benefit payments. No contributionscontributions to the Company's qualified pension plans are expected in 2017.2023.
CSX Q1 2023 Form 10-Q p.17
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7. Debt and Credit Agreements
Total activity related to long-term debt as of the end of thirdfirst quarter 20172023 is shown in the table below. For fair value information related to the Company's long-term debt, see Note 9, Fair Value Measurements.Measurements.
| | | | | | | | | | | |
(Dollars in millions) | Current Portion | Long-term Portion | Total |
Long-term Debt as of December 31, 2022 | $ | 151 | | $ | 17,896 | | $ | 18,047 | |
2023 Activity: | | | |
| | | |
Long-term Debt Repaid | (142) | | — | | (142) | |
Reclassifications | 2 | | (2) | | — | |
| | | |
Hedging, Discount, Premium and Other Activity | — | | 17 | | 17 | |
| | | |
Long-term Debt as of March 31, 2023 | $ | 11 | | $ | 17,911 | | $ | 17,922 | |
|
| | | | | | | | | |
(Dollars in millions) | Current Portion | Long-term Portion | Total |
Long-term debt as of December 30, 2016 | $ | 331 |
| $ | 10,962 |
| $ | 11,293 |
|
2017 activity: | | | |
Long-term debt issued | — |
| 850 |
| 850 |
|
Long-term debt repaid | (332 | ) | — |
| (332 | ) |
Reclassifications | 20 |
| (20 | ) | — |
|
Discount, premium and other activity |
| (4 | ) | (4 | ) |
Long-term debt as of September 30, 2017 | $ | 19 |
| $ | 11,788 |
| $ | 11,807 |
|
Interest Rate Derivatives
Debt IssuanceFair Value Hedges
In May 2017,first quarter 2022, CSX issued $850entered into five separate fixed-to-floating interest rate swaps classified as fair value hedges. The swaps are designed to hedge 10 years of interest rate risk associated with market fluctuations attributable to the Secured Overnight Financing Rate on a cumulative $800 million of 3.25%fixed rate outstanding notes which are due 2027. These notes arebetween 2036 and 2040. The cumulative fair value of these swaps, which is included in other long-term liabilities on the consolidated balance sheets undersheet, was a liability of $103 million and $118 million as of March 31, 2023, and December 31, 2022, respectively. The associated cumulative adjustment to the hedged notes is included in long-term debt. Gains and losses resulting from changes in fair value of the interest rate swaps offset changes in the fair value of the hedged portion of the underlying debt with no gain or loss recognized due to hedge ineffectiveness. The difference in the net fixed-to-float interest settlement on the derivatives is recognized in interest expense and was not material in first quarter 2023 or 2022. The swaps will expire in 2032. If settled early, the remaining cumulative fair value adjustment to the hedged notes will be amortized over the remaining life of the associated notes. The amounts recorded in long-term debt and may be redeemed byon the Company at any time. The net proceeds will be used for general corporate purposes, which may include repurchases of CSX's common stock, capital investment, working capital requirements, improvementconsolidated balance sheet related to these fair value hedges is summarized in productivity and other cost reductions at CSX’s major transportation units.the table below.
| | | | | | | | | | | | | | |
(Dollars in millions) | March 31, 2023 | December 31, 2022 |
Notional Value of Hedged Notes | $ | 800 | | $ | 800 | |
Cumulative Fair Value Adjustment to Hedged Notes | (103) | | (118) | |
Carrying Amount of Hedged Notes | $ | 697 | | $ | 682 | |
CSX Q1 2023 Form 10-Q p.18
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| CSX Q3 2017 Form 10-Q p.20
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7. Debt and Credit Agreements,continued
Cash Flow Hedges
The unsettled aggregate notional value of forward starting interest rate swaps, classified as cash flow hedges, executed in 2020 is $340 million. These swaps were effected to hedge the benchmark interest rate associated with future interest payments related to the anticipated refinancing of $850 million of 3.25% notes due in 2027. As of March 31, 2023, and December 31, 2022, the asset value of the forward starting interest rate swaps was $124 million and $127 million, respectively, and was recorded in other long-term assets on the consolidated balance sheet. Unrealized gains or losses associated with changes in the fair value of the hedge are recorded net of tax in accumulated other comprehensive income (“AOCI”) on the consolidated balance sheet. Unless settled early, the remainder of the swaps will expire in 2027 and the unrealized gain or loss in AOCI will be recognized in earnings as an adjustment to interest expense over the same period during which the hedged transaction affects earnings. Unrealized amounts, recorded net of tax in other comprehensive income, related to the hedge were a loss of$3 million in first quarter 2023 and gain of $21 million in first quarter 2022.
See Note 9, Fair Value Measurements, and Note 10, Other Comprehensive Income (Loss), for additional information about the Company's hedges.
Credit Facility
On February 28, 2023, CSX hasreplaced its existing $1.2 billion unsecured revolving credit facility with a $1new $1.2 billion unsecured revolving credit facility backed by a diverse syndicate of banks. This facility expires in May 2020, and as of the date of this filing, the Company has no outstanding balances under this facility. The facility allows same-day borrowings at floating (LIBOR-based) interest rates, based on Secured Overnight Financing Rate ("SOFR") or an agreed-upon replacement reference rate, plus a spread dependingthat depends upon CSX's senior unsecured debt ratings. LIBOR isThis facility expires in February 2028. As of March 31, 2023, the London Interbank Offered Rate which is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds.Company had no outstanding balances under this facility.
Commitment fees and interest rates payable under the facility were similar to fees and rates available to comparably rated investment-grade borrowers. As of thirdfirst quarter 2017,2023, CSX was in compliance with all covenant requirements under this facility.
Receivables Securitization FacilityCommercial Paper
The Company has a receivables securitization facility with a three-year term scheduled to expire in September 2019. The purpose of this facility is to provide an alternative toUnder its commercial paper and a low cost source of short-term liquidity ofprogram, which is backed by the revolving credit facility, the Company may issue unsecured commercial paper notes up to $200 million, depending on eligible receivables balances. Asa maximum aggregate principal amount of $1.0 billion outstanding at any one time. Proceeds from issuances of the datenotes are expected to be used for general corporate purposes. At March 31, 2023, the Company had no outstanding debt under the commercial paper program.
CSX Q1 2023 Form 10-Q p.19
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 8. Income TaxesRevenues
There have been noThe Company’s revenues are primarily derived from the transportation of freight as performance obligations that arise from its contracts with customers are satisfied. The following table presents the Company’s revenues disaggregated by market as this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors:
| | | | | | | | | | | |
| First Quarters | | |
(Dollars in millions) | 2023 | 2022 | | | |
| | | | | |
Chemicals | $ | 650 | | $ | 618 | | | | |
Agricultural and Food Products | 437 | | 387 | | | | |
Automotive | 274 | | 227 | | | | |
Forest Products | 261 | | 228 | | | | |
Metals and Equipment | 239 | | 197 | | | | |
Minerals | 173 | | 144 | | | | |
Fertilizers | 129 | | 120 | | | | |
Total Merchandise | 2,163 | | 1,921 | | | | |
| | | | | |
Coal | 633 | | 533 | | | | |
Intermodal | 499 | | 527 | | | | |
Trucking | 233 | | 230 | | | | |
Other | 178 | | 202 | | | | |
Total | $ | 3,706 | | $ | 3,413 | | | | |
The Company’s accounts receivable - net consists of freight and non-freight receivables, reduced by an allowance for credit losses. Freight receivables include amounts earned, billed and unbilled, and currently due from customersfor transportation-related services. Non-freight receivables include amounts billed and unbilled and currently due related to government reimbursement receivables and other non-revenue receivables. As of March 31, 2023, non-freight receivables includes $42 million related to an insurance recovery recognized in first quarter 2023.
| | | | | | | | |
(Dollars in millions) | March 31, 2023 | December 31, 2022 |
| | |
Freight Receivables | $ | 1,056 | | $ | 1,067 | |
Freight Allowance for Credit Losses | (17) | | (16) | |
Freight Receivables, net | 1,039 | | 1,051 | |
| | |
Non-Freight Receivables | 356 | | 279 | |
Non-Freight Allowance for Credit Losses | (18) | | (17) | |
Non-Freight Receivables, net | 338 | | 262 | |
Total Accounts Receivable, net | $ | 1,377 | | $ | 1,313 | |
The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of risk characteristics, historical payment experience, and the age of outstanding receivables adjusted for forward-looking economic conditions as necessary.Credit losses recognized on the Company’s accounts receivable were not material changes toin the balancefirst quarters 2023 and 2022.
CSX Q1 2023 Form 10-Q p.20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9. Fair Value Measurements
The Financial Instruments Topic in the ASC requiresdisclosures about fair value of financial instruments in annual reports as well as in quarterly reports. For CSX, this statement applies to certain investments and long-term debt. Disclosure of the fair value of pension plan assets is only required annually. Also, this rule clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.
Various inputs are considered when determining the value of the Company's investments, pension plan assets and long-term debt. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.
Level 1 - observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.); and
Level 3 - significant unobservable inputs (including the Company's own assumptions about the assumptions market participants would use in determining the fair value of investments).
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| CSX Q3 2017 Form 10-Q p.21
|
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9. Fair Value Measurements, continued
The valuation methods described below may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Investments
The Company's investment assets valued with assistance from a third-party trustee, consist of certificates of deposits, commercial paper, corporate bonds and government securities and are carried at fair value on the consolidated balance sheet perin accordance with the Fair Value Measurements and Disclosures Topicin theASC. ThereThey are several valuation methodologies used for those assets as described below.
Certificatesvalued with assistance from a third-party trustee and consist of Depositfixed income mutual funds, corporate bonds, government securities and Commercial Paper (Level 2): Valuedshort-term time deposits. The fixed income mutual funds are valued at amortized cost,the net asset value of shares held based on quoted market prices determined in an active market, which approximates fair value;are Level 1 inputs. The corporate bonds and
Corporate Bonds and Government Securities (Level 2): Valued government securities are valued using broker quotes that utilize observable market inputs, which are Level 2 inputs.
The carrying amount of time deposits as reported in the consolidated balance sheet, using Level 2 inputs, approximates fair value due to their short-term nature. Unrealized losses as of March 31, 2023 were not material. The Company believes any impairment of investments held with gross unrealized losses to be temporary and not the result of credit risk.
The Company's investment assets are carried at fair value on the consolidated balance sheets as summarized in the following table. All of the inputs used to determine the fair value of the Company's investments are Level 2 inputs. The amortized cost basis of these investments was $186 million and $500 million as of September 30, 2017 and December 30, 2016, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(Dollars in millions) | Level 1 | Level 2 | | Total | | Level 1 | Level 2 | | Total |
Fixed Income Mutual Funds | $ | 77 | | $ | — | | | $ | 77 | | | $ | 89 | | $ | — | | | $ | 89 | |
Corporate Bonds | — | | 49 | | | 49 | | | — | | 49 | | | 49 | |
Time Deposits | — | | 100 | | | 100 | | | — | | — | | | — | |
Government Securities | — | | 18 | | | 18 | | | — | | 58 | | | 58 | |
| | | | | | | | | |
Total investments at fair value | $ | 77 | | $ | 167 | | | $ | 244 | | | $ | 89 | | $ | 107 | | | $ | 196 | |
| | | | | | | | | |
Total investments at amortized cost | | | | $ | 247 | | | | | | $ | 201 | |
|
| | | | | | | |
(Dollars in Millions) | September 30, 2017 | | December 30, 2016 |
Certificates of Deposit and Commercial Paper | $ | 100 |
| | $ | 415 |
|
Corporate Bonds | 60 |
| | 63 |
|
Government Securities | 29 |
| | 22 |
|
Total investments at fair value | $ | 189 |
| | $ | 500 |
|
These investments have the following maturities:
| | (Dollars in millions) | September 30, 2017 | | December 30, 2016 | (Dollars in millions) | March 31, 2023 | | December 31, 2022 |
Less than 1 year | $ | 113 |
| | $ | 417 |
| Less than 1 year | $ | 178 | | | $ | 129 | |
1 - 2 years | 5 |
| | 12 |
| |
2 - 5 years | 10 |
| | 4 |
| |
Greater than 5 years | 61 |
| | 67 |
| |
1 - 5 years | | 1 - 5 years | 24 | | | 24 | |
5 - 10 years | | 5 - 10 years | 9 | | | 10 | |
Greater than 10 years | | Greater than 10 years | 33 | | | 33 | |
Total investments at fair value | $ | 189 |
| | $ | 500 |
| Total investments at fair value | $ | 244 | | | $ | 196 | |
CSX Q1 2023 Form 10-Q p.21
|
| | |
| CSX Q3 2017 Form 10-Q p.22
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9. Fair Value Measurements, continued
Long-term Debt
Long-term debt is reported at carrying amount on the consolidated balance sheets and is the Company's only financial instrument with fair values significantly different from their carrying amounts. The fair value of a company's debt is a measure of its current value under present market conditions. It does not impact the financial statements under current accounting rules. The majority of the Company's long-term debt is valued with assistance from an independenta third party adviser that utilizes closing transactions, market quotes or market values of comparable debt. For those instruments not valued by the independent adviser,third party, the fair value has been estimated by applying market rates of similar instruments to the scheduled contractual debt payments and maturities. These market rates are provided by the same independent adviser.third party. All of the inputs used to determine the fair value of the Company's long-term debt are Level 2 inputs.
The fair value of outstanding debt fluctuates with changes in a number of factors. Such factors include, but are not limited to, interest rates, market conditions, credit ratings, values of similar financial instruments, size of the transaction, cash flow projections and comparable trades. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued. The fair value of a company's debt is a measure of its current value under present market conditions. It does not impact the financial statements under current accounting rules.
The fair value and carrying value of the Company's long-term debt is as follows:
| | | | | | | | | | | |
(Dollars in millions) | March 31, 2023 | | December 31, 2022 |
Long-term Debt (Including Current Maturities): | | | |
Fair Value | $ | 16,592 | | | $ | 16,135 | |
Carrying Value | 17,922 | | | 18,047 | |
Interest Rate Derivatives
The Company’s fixed-to-floating and forward starting interest rate swaps are carried at their respective fair values, which are determined with assistance from a third party based upon pricing models using inputs observed from actively quoted markets. All of the inputs used to determine the fair value of the swaps are Level 2 inputs. The fair value of the Company’s fixed-to-floating interest rate swaps was a liability of $103 million and $118 million as of March 31, 2023, and December 31, 2022, respectively. The fair value of the Company’s forward starting interest rate swap asset was $124 million and $127 million as of March 31, 2023, and December 31, 2022, respectively. See Note 7, Debt and Credit Agreements, for further information.
CSX Q1 2023 Form 10-Q p.22
|
| | | | | | | |
(Dollars in millions) | September 30, 2017 | | December 30, 2016 |
Long-term Debt (Including Current Maturities): | | | |
Fair Value | $ | 13,082 |
| | $ | 12,096 |
|
Carrying Value | 11,807 |
| | 11,293 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10. Other Comprehensive Income (Loss)
CSX reports comprehensive earnings or loss in accordance with the Comprehensive Income Topic in the ASC in the Consolidated Comprehensive Income Statement. Total comprehensive earnings are defined as all changes in shareholders' equity during a period, other than those resulting from investments by and distributions to shareholders (e.g. issuance of equity securities and dividends). Generally, for CSX, total comprehensive earnings equal net earnings plus or minus adjustments for pension and other post-retirement liabilities.liabilities as well as derivative activity and other adjustments. Total comprehensive earnings represent the activity for a period net of tax and were $467 was $989 million and $465$890 million for thirdfirst quarters 2023 and $1.4 billion and $1.3 billion for nine months 2017 and 2016,2022, 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”)AOCI represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. For CSX, AOCI is primarily the cumulative balance related to pension and other post-retirement benefit adjustments and CSX's share of AOCI of equity method investees.
|
| | |
| CSX Q3 2017 Form 10-Q p.23
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10. Other Comprehensive Income (Loss), continued
Changes in the AOCI balance by component are shown in the table below.following table. Amounts reclassified in pension and other post-employment benefits to net earnings relate to the amortization of actuarial losses and are included in labor and fringeother income - net on the consolidated income statements. See Note 6, Employee Benefit Plans, for further information. Interest rate derivatives consist of forward starting interest rate swaps classified as cash flow hedges. See Note 7, Debt and Credit Agreements, for further information. Other primarily represents CSX's share of AOCI of equity method investees. Amounts reclassified in other to net earnings are included in materials, suppliespurchased services and other or equipment and other rents on the consolidated income statements.
| | | | | | | | | | | | | | |
| Pension and Other Post-Employment Benefits | Interest Rate Derivatives | Other | Accumulated Other Comprehensive Income (Loss) |
(Dollars in millions) | | | | |
Balance December 31, 2022, Net of Tax | $ | (497) | | $ | 150 | | $ | (41) | | $ | (388) | |
Other Comprehensive Income (Loss) | | | | |
Income Before Reclassifications | — | | (3) | | — | | (3) | |
Amounts Reclassified to Net Earnings | 4 | | — | | 2 | | 6 | |
Tax (Expense)/Benefit | (1) | | — | | — | | (1) | |
Total Other Comprehensive Income | 3 | | (3) | | 2 | | 2 | |
Balance March 31, 2023, Net of Tax | $ | (494) | | $ | 147 | | $ | (39) | | $ | (386) | |
CSX Q1 2023 Form 10-Q p.23
|
| | | | | | | | | |
| Pension and Other Post-Employment Benefits | Other | Accumulated Other Comprehensive Income (Loss) |
(Dollars in millions) | | | |
Balance December 30, 2016, Net of Tax | $ | (580 | ) | $ | (60 | ) | $ | (640 | ) |
Other Comprehensive Income (Loss) | | | |
Income Before Reclassifications | 86 |
| 2 |
| 88 |
|
Amounts Reclassified to Net Earnings | 33 |
| 2 |
| 35 |
|
Tax Expense | (43 | ) | (1 | ) | (44 | ) |
Total Other Comprehensive Income | 76 |
| 3 |
| 79 |
|
Balance September 30, 2017, Net of Tax | $ | (504 | ) | $ | (57 | ) | $ | (561 | ) |
NOTE 11. Summarized Consolidating Financial Data
In 2007, CSXT, a wholly-owned subsidiary of CSX Corporation, sold secured equipment notes maturing in 2023 in a registered public offering. CSX has fully and unconditionally guaranteed the notes. In connection with the notes, the Company is providing the following condensed consolidating financial information in accordance with SEC disclosure requirements. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation and the allocation of certain expenses of CSX incurred for the benefit of its subsidiaries. Condensed consolidating financial information for the obligor, CSXT, and parent guarantor, CSX, is shown in the following tables.
|
| | |
| CSX Q3 2017 Form 10-Q p.24
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11.Summarized Consolidating Financial Data, continued
|
| | | | | | | | | | | | |
Consolidating Income Statements |
(Dollars in millions) |
Third Quarter 2017 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated |
Revenue | $ | — |
| $ | 2,725 |
| $ | 18 |
| $ | 2,743 |
|
Expense | (129 | ) | 2,025 |
| (29 | ) | 1,867 |
|
Operating Income | 129 |
| 700 |
| 47 |
| 876 |
|
| | | | |
Equity in Earnings of Subsidiaries | 472 |
| — |
| (472 | ) | — |
|
Interest (Expense) / Benefit | (147 | ) | (3 | ) | 18 |
| (132 | ) |
Other Income / (Expense) - Net | 1 |
| 13 |
| (8 | ) | 6 |
|
| | | | |
Earnings Before Income Taxes | 455 |
| 710 |
| (415 | ) | 750 |
|
Income Tax Benefit / (Expense) | 4 |
| (277 | ) | (18 | ) | (291 | ) |
Net Earnings | $ | 459 |
| $ | 433 |
| $ | (433 | ) | $ | 459 |
|
| | | | |
Total Comprehensive Earnings | $ | 467 |
| $ | 433 |
| $ | (433 | ) | $ | 467 |
|
| | | | |
Third Quarter 2016 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated |
Revenue | $ | — |
| $ | 2,691 |
| $ | 19 |
| $ | 2,710 |
|
Expense | (63 | ) | 1,960 |
| (28 | ) | 1,869 |
|
Operating Income | 63 |
| 731 |
| 47 |
| 841 |
|
| | | | |
Equity in Earnings of Subsidiaries | 505 |
| 1 |
| (506 | ) | — |
|
Interest (Expense) / Benefit | (141 | ) | (7 | ) | 9 |
| (139 | ) |
Other Income / (Expense) - Net | — |
| 9 |
| 4 |
| 13 |
|
| | | | |
Earnings Before Income Taxes | 427 |
| 734 |
| (446 | ) | 715 |
|
Income Tax (Expense) / Benefit | 28 |
| (268 | ) | (20 | ) | (260 | ) |
Net Earnings | $ | 455 |
| $ | 466 |
| $ | (466 | ) | $ | 455 |
|
| | | | |
Total Comprehensive Earnings | $ | 465 |
| $ | 467 |
| $ | (467 | ) | $ | 465 |
|
|
| | |
| CSX Q3 2017 Form 10-Q p.25
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11.Summarized Consolidating Financial Data, continued
|
| | | | | | | | | | | | |
Consolidating Income Statements |
(Dollars in millions) |
Nine Months 2017 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated |
Revenue | $ | — |
| $ | 8,490 |
| $ | 55 |
| $ | 8,545 |
|
Expense | (171 | ) | 6,278 |
| (108 | ) | 5,999 |
|
Operating Income | 171 |
| 2,212 |
| 163 |
| 2,546 |
|
| | | | |
Equity in Earnings of Subsidiaries | 1,506 |
| — |
| (1,506 | ) | — |
|
Interest (Expense) / Benefit | (432 | ) | (21 | ) | 47 |
| (406 | ) |
Other Income / (Expense) - Net | 6 |
| 32 |
| (19 | ) | 19 |
|
| | | | |
Earnings Before Income Taxes | 1,251 |
| 2,223 |
| (1,315 | ) | 2,159 |
|
Income Tax (Expense) / Benefit | 80 |
| (844 | ) | (64 | ) | (828 | ) |
Net Earnings | $ | 1,331 |
| $ | 1,379 |
| $ | (1,379 | ) | $ | 1,331 |
|
| | | | |
Total Comprehensive Earnings | $ | 1,410 |
| $ | 1,378 |
| $ | (1,378 | ) | $ | 1,410 |
|
| | | | |
Nine Months 2016 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated |
Revenue | $ | — |
| $ | 7,974 |
| $ | 58 |
| $ | 8,032 |
|
Expense | (202 | ) | 5,985 |
| (136 | ) | 5,647 |
|
Operating Income | 202 |
| 1,989 |
| 194 |
| 2,385 |
|
| | | | |
Equity in Earnings of Subsidiaries | 1,399 |
| 1 |
| (1,400 | ) | — |
|
Interest (Expense) / Benefit | (425 | ) | (27 | ) | 29 |
| (423 | ) |
Other Income / (Expense) - Net | 1 |
| 24 |
| 3 |
| 28 |
|
| | | | |
Earnings Before Income Taxes | 1,177 |
| 1,987 |
| (1,174 | ) | 1,990 |
|
Income Tax (Expense) / Benefit | 79 |
| (735 | ) | (78 | ) | (734 | ) |
Net Earnings | $ | 1,256 |
| $ | 1,252 |
| $ | (1,252 | ) | $ | 1,256 |
|
| | | | |
Total Comprehensive Earnings | $ | 1,282 |
| $ | 1,253 |
| $ | (1,253 | ) | $ | 1,282 |
|
| | | | |
|
| | |
| CSX Q3 2017 Form 10-Q p.26
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11.Summarized Consolidating Financial Data, continued
|
| | | | | | | | | | | | |
Consolidating Balance Sheet |
(Dollars in millions) |
September 30, 2017 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated |
| | | | |
ASSETS |
Current Assets | | | | |
Cash and Cash Equivalents | $ | 433 |
| $ | 147 |
| $ | 11 |
| $ | 591 |
|
Short-term Investments | 100 |
| — |
| 13 |
| 113 |
|
Accounts Receivable - Net | (1 | ) | 277 |
| 705 |
| 981 |
|
Receivable from Affiliates | 1,012 |
| 3,004 |
| (4,016 | ) | — |
|
Materials and Supplies | — |
| 392 |
| — |
| 392 |
|
Other Current Assets | 2 |
| 76 |
| 17 |
| 95 |
|
Total Current Assets | 1,546 |
| 3,896 |
| (3,270 | ) | 2,172 |
|
| | | | |
Properties | 1 |
| 41,292 |
| 2,812 |
| 44,105 |
|
Accumulated Depreciation | (1 | ) | (11,014 | ) | (1,511 | ) | (12,526 | ) |
Properties - Net | — |
| 30,278 |
| 1,301 |
| 31,579 |
|
| | | | |
Investments in Conrail | — |
| — |
| 864 |
| 864 |
|
Affiliates and Other Companies | (39 | ) | 667 |
| 14 |
| 642 |
|
Investments in Consolidated Subsidiaries | 25,221 |
| — |
| (25,221 | ) | — |
|
Other Long-term Assets | 9 |
| 592 |
| (285 | ) | 316 |
|
Total Assets | $ | 26,737 |
| $ | 35,433 |
| $ | (26,597 | ) | $ | 35,573 |
|
| | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | |
Current Liabilities | | | | |
Accounts Payable | $ | 178 |
| $ | 695 |
| $ | 32 |
| $ | 905 |
|
Labor and Fringe Benefits Payable | 76 |
| 483 |
| 42 |
| 601 |
|
Payable to Affiliates | 4,148 |
| 382 |
| (4,530 | ) | — |
|
Casualty, Environmental and Other Reserves | — |
| 109 |
| 13 |
| 122 |
|
Current Maturities of Long-term Debt | — |
| 19 |
| — |
| 19 |
|
Income and Other Taxes Payable | (115 | ) | 418 |
| 19 |
| 322 |
|
Other Current Liabilities | — |
| 103 |
| 3 |
| 106 |
|
Total Current Liabilities | 4,287 |
| 2,209 |
| (4,421 | ) | 2,075 |
|
| | | | |
Casualty, Environmental and Other Reserves | — |
| 207 |
| 46 |
| 253 |
|
Long-term Debt | 11,053 |
| 735 |
| — |
| 11,788 |
|
Deferred Income Taxes - Net | (198 | ) | 9,697 |
| 290 |
| 9,789 |
|
Other Long-term Liabilities | 708 |
| 375 |
| (317 | ) | 766 |
|
Total Liabilities | $ | 15,850 |
| $ | 13,223 |
| $ | (4,402 | ) | $ | 24,671 |
|
| | | | |
Shareholders' Equity | | | | |
Common Stock, $1 Par Value | $ | 894 |
| $ | 181 |
| $ | (181 | ) | $ | 894 |
|
Other Capital | 227 |
| 5,096 |
| (5,096 | ) | 227 |
|
Retained Earnings | 10,327 |
| 16,938 |
| (16,938 | ) | 10,327 |
|
Accumulated Other Comprehensive Loss | (561 | ) | (20 | ) | 20 |
| (561 | ) |
Noncontrolling Interest | — |
| 15 |
| — |
| 15 |
|
Total Shareholders' Equity | $ | 10,887 |
| $ | 22,210 |
| $ | (22,195 | ) | $ | 10,902 |
|
Total Liabilities and Shareholders' Equity | $ | 26,737 |
| $ | 35,433 |
| $ | (26,597 | ) | $ | 35,573 |
|
|
| | |
| CSX Q3 2017 Form 10-Q p.27
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11.Summarized Consolidating Financial Data, continued
|
| | | | | | | | | | | | |
Consolidating Balance Sheet (Dollars in millions) |
December 30, 2016 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated |
ASSETS |
Current Assets | | | | |
Cash and Cash Equivalents | $ | 305 |
| $ | 281 |
| $ | 17 |
| $ | 603 |
|
Short-term Investments | 415 |
| — |
| 2 |
| 417 |
|
Accounts Receivable - Net | 2 |
| 215 |
| 721 |
| 938 |
|
Receivable from Affiliates | 1,157 |
| 2,351 |
| (3,508 | ) | — |
|
Materials and Supplies | — |
| 407 |
| — |
| 407 |
|
Other Current Assets | — |
| 106 |
| 16 |
| 122 |
|
Total Current Assets | 1,879 |
| 3,360 |
| (2,752 | ) | 2,487 |
|
| | | | |
Properties | 1 |
| 40,518 |
| 2,708 |
| 43,227 |
|
Accumulated Depreciation | (1 | ) | (10,634 | ) | (1,442 | ) | (12,077 | ) |
Properties - Net | — |
| 29,884 |
| 1,266 |
| 31,150 |
|
| | | | |
Investments in Conrail | — |
| — |
| 840 |
| 840 |
|
Affiliates and Other Companies | (39 | ) | 643 |
| 15 |
| 619 |
|
Investment in Consolidated Subsidiaries | 24,179 |
| — |
| (24,179 | ) | — |
|
Other Long-term Assets | 2 |
| 607 |
| (291 | ) | 318 |
|
Total Assets | $ | 26,021 |
| $ | 34,494 |
| $ | (25,101 | ) | $ | 35,414 |
|
| | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | |
Current Liabilities | | | | |
Accounts Payable | $ | 95 |
| $ | 678 |
| $ | 33 |
| $ | 806 |
|
Labor and Fringe Benefits Payable | 40 |
| 440 |
| 65 |
| 545 |
|
Payable to Affiliates | 3,457 |
| 500 |
| (3,957 | ) | — |
|
Casualty, Environmental and Other Reserves | — |
| 102 |
| 13 |
| 115 |
|
Current Maturities of Long-term Debt | 313 |
| 19 |
| (1 | ) | 331 |
|
Income and Other Taxes Payable | (346 | ) | 459 |
| 16 |
| 129 |
|
Other Current Liabilities | — |
| 112 |
| 2 |
| 114 |
|
Total Current Liabilities | 3,559 |
| 2,310 |
| (3,829 | ) | 2,040 |
|
| | | | |
Casualty, Environmental and Other Reserves | — |
| 208 |
| 51 |
| 259 |
|
Long-term Debt | 10,203 |
| 759 |
| — |
| 10,962 |
|
Deferred Income Taxes - Net | (203 | ) | 9,541 |
| 258 |
| 9,596 |
|
Other Long-term Liabilities | 783 |
| 410 |
| (330 | ) | 863 |
|
Total Liabilities | $ | 14,342 |
| $ | 13,228 |
| $ | (3,850 | ) | $ | 23,720 |
|
| | | | |
Shareholders' Equity | | | | |
Common Stock, $1 Par Value | $ | 928 |
| $ | 181 |
| $ | (181 | ) | $ | 928 |
|
Other Capital | 138 |
| 5,095 |
| (5,095 | ) | 138 |
|
Retained Earnings | 11,253 |
| 15,994 |
| (15,994 | ) | 11,253 |
|
Accumulated Other Comprehensive Loss | (640 | ) | (19 | ) | 19 |
| (640 | ) |
Noncontrolling Minority Interest | — |
| 15 |
| — |
| 15 |
|
Total Shareholders' Equity | $ | 11,679 |
| $ | 21,266 |
| $ | (21,251 | ) | $ | 11,694 |
|
Total Liabilities and Shareholders' Equity | $ | 26,021 |
| $ | 34,494 |
| $ | (25,101 | ) | $ | 35,414 |
|
|
| | |
| CSX Q3 2017 Form 10-Q p.28
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11.Summarized Consolidating Financial Data, continued
|
| | | | | | | | | | | | |
Consolidating Cash Flow Statements |
(Dollars in millions) |
Nine Months 2017 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated |
Operating Activities | | | | |
Net Cash Provided by (Used in) Operating Activities | $ | 1,590 |
| $ | 1,544 |
| $ | (273 | ) | $ | 2,861 |
|
Investing Activities | |
| | |
Property Additions | — |
| (1,311 | ) | (151 | ) | (1,462 | ) |
Purchases of Short-term Investments | (639 | ) | — |
| (6 | ) | (645 | ) |
Proceeds from Sales of Short-term Investments | 955 |
| — |
| 2 |
| 957 |
|
Other Investing Activities | (2 | ) | 98 |
| (25 | ) | 71 |
|
Net Cash Provided by (Used in) Investing Activities | 314 |
| (1,213 | ) | (180 | ) | (1,079 | ) |
Financing Activities | | | | |
Long-term Debt Issued | 850 |
| — |
| — |
| 850 |
|
Long-term Debt Repaid | (312 | ) | (20 | ) | — |
| (332 | ) |
Dividends Paid | (530 | ) | (450 | ) | 450 |
| (530 | ) |
Shares Repurchased | (1,763 | ) | — |
| — |
| (1,763 | ) |
Other Financing Activities | (21 | ) | 5 |
| (3 | ) | (19 | ) |
Net Cash Provided by (Used in) Financing Activities | (1,776 | ) | (465 | ) | 447 |
| (1,794 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents | 128 |
| (134 | ) | (6 | ) | (12 | ) |
Cash and Cash Equivalents at Beginning of Period | 305 |
| 281 |
| 17 |
| 603 |
|
Cash and Cash Equivalents at End of Period | $ | 433 |
| $ | 147 |
| $ | 11 |
| $ | 591 |
|
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| CSX Q3 2017 Form 10-Q p.29
|
|
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11.Summarized Consolidating Financial Data, continued
|
| | | | | | | | | | | | |
Consolidating Cash Flow Statements |
(Dollars in millions) |
Nine Months 2016 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated |
Operating Activities | | | | |
Net Cash Provided by (Used in) Operating Activities | $ | 644 |
| $ | 2,089 |
| $ | (245 | ) | $ | 2,488 |
|
Investing Activities | | | | |
Property Additions | — |
| (1,469 | ) | (121 | ) | (1,590 | ) |
Purchases of Short-term Investments | (410 | ) | — |
| — |
| (410 | ) |
Proceeds from Sales of Short-term Investments | 1,070 |
| — |
| — |
| 1,070 |
|
Other Investing Activities | (3 | ) | 107 |
| (67 | ) | 37 |
|
Net Cash Provided by (Used in) Investing Activities | 657 |
| (1,362 | ) | (188 | ) | (893 | ) |
Financing Activities | | | | |
Long-term Debt Issued | — |
| — |
| — |
| — |
|
Long-term Debt Repaid | — |
| (18 | ) | (1 | ) | (19 | ) |
Dividends Paid | (513 | ) | (450 | ) | 450 |
| (513 | ) |
Shares Repurchased | (778 | ) | — |
| — |
| (778 | ) |
Other Financing Activities | (6 | ) | (304 | ) | — |
| (310 | ) |
Net Cash Provided by (Used in) Financing Activities | (1,297 | ) | (772 | ) | 449 |
| (1,620 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents | 4 |
| (45 | ) | 16 |
| (25 | ) |
Cash and Cash Equivalents at Beginning of Period | 444 |
| 175 |
| 9 |
| 628 |
|
Cash and Cash Equivalents at End of Period | $ | 448 |
| $ | 130 |
| $ | 25 |
| $ | 603 |
|
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| CSX Q3 2017 Form 10-Q p.30
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|
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD
FIRST QUARTER 20172023 HIGHLIGHTS
•Revenue increased $33$293 million, to $2.7 billion, or 1 percent9% year over year.
•Expenses decreasedincreased$2111 million, to $1.9 billion.
or 5% year over year.•Operating income of $876 million$1.5 billion increased $35$182 million, or 4 percent14%, year over year.
•Operating ratio of 68.1% improved 9060.5% decreased 190 basis points versus last year's quarter.prior year.
•Earnings per diluted share of $0.51$0.48 increased$0.03,0.09, or 6 percent23%, year over year.
| | | | | | | | | | | | | | | | | | | |
| First Quarters | | |
| 2023 | 2022 | Fav/ (Unfav) | % Change | | | | | |
Volume (in thousands) | 1,486 | | 1,498 | | (12) | (1)% | | | | | |
| | | | | | | | | |
(in millions) | | | | | | | | | |
Revenue | $ | 3,706 | | $ | 3,413 | | $ | 293 | 9 | | | | | |
Expense | 2,242 | | 2,131 | | (111) | (5) | | | | | |
Operating Income | $ | 1,464 | | $ | 1,282 | | $ | 182 | 14% | | | | | |
| | | | | | | | | |
Operating Ratio | 60.5 | % | 62.4 | % | 190 | bps | | | | | |
| | | | | | | | | |
Earnings Per Diluted Share | $ | 0.48 | | $ | 0.39 | | $ | 0.09 | 23% | | | | | |
CSX Q1 2023 Form 10-Q p.24
|
| | | | | | | | | | | | | | | | | | | | | |
| Third Quarters | | Nine Months |
| 2017 | 2016 | Fav / (Unfav) | % Change | | 2017 | 2016 | Fav / (Unfav) | % Change |
Volume (in thousands) | 1,587 |
| 1,574 |
| 13 |
| 1% | | 4,799 |
| 4,720 |
| 79 |
| 2% |
| | | | | | | | | |
(in millions) | | | | | | | | | |
Revenue | $ | 2,743 |
| $ | 2,710 |
| $ | 33 |
| 1% | | $ | 8,545 |
| $ | 8,032 |
| $ | 513 |
| 6% |
Expense | 1,867 |
| 1,869 |
| 2 |
| —% | | 5,999 |
| 5,647 |
| (352 | ) | (6)% |
Operating Income | $ | 876 |
| $ | 841 |
| $ | 35 |
| 4% | | $ | 2,546 |
| $ | 2,385 |
| $ | 161 |
| 7% |
| | | | | | | | | |
Operating Ratio | 68.1 | % | 69.0 | % | 90 |
| bps | | 70.2 | % | 70.3 | % | 10 |
| bps |
| | | | | | | | | |
Earnings Per Diluted Share | $ | 0.51 |
| $ | 0.48 |
| $ | 0.03 |
| 6% | | $ | 1.45 |
| $ | 1.32 |
| $ | 0.13 |
| 10% |
In third quarter 2017, the Company continued implementation of Precision Scheduled Railroading. As a result, CSX is adjusting its strategy to successfully execute this new plan, relentlessly focusing on improving customer service, controlling costs, optimizing asset utilization, operating safely, and developing and valuing employees.
The restructuring charge was $1 million in third quarter 2017 and $296 million year-to-date, which includes costs related to the management workforce reduction program announced earlier this year. The Company expects estimated pre-tax savings on both future earnings and cash flows resulting from this program to be approximately $200 million per year.
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| CSX Q3 2017 Form 10-Q p.31
|
|
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Volume and Revenue (Unaudited) |
Volume (Thousands of units); Revenue (Dollars in Millions); Revenue Per Unit (Dollars) |
First Quarters |
| Volume | | Revenue | | Revenue Per Unit |
| 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change | | 2023 | | 2022 | | % Change |
Chemicals | 160 | | | 161 | | | (1) | % | | $ | 650 | | | $ | 618 | | | 5 | % | | $ | 4,063 | | | $ | 3,839 | | | 6 | % |
Agricultural and Food Products | 122 | | | 118 | | | 3 | | | 437 | | | 387 | | | 13 | | | 3,582 | | | 3,280 | | | 9 | |
Automotive | 86 | | | 78 | | | 10 | | | 274 | | | 227 | | | 21 | | | 3,186 | | | 2,910 | | | 9 | |
Minerals | 83 | | | 72 | | | 15 | | | 173 | | | 144 | | | 20 | | | 2,084 | | | 2,000 | | | 4 | |
Forest Products | 73 | | | 70 | | | 4 | | | 261 | | | 228 | | | 14 | | | 3,575 | | | 3,257 | | | 10 | |
Metals and Equipment | 73 | | | 66 | | | 11 | | | 239 | | | 197 | | | 21 | | | 3,274 | | | 2,985 | | | 10 | |
Fertilizers | 50 | | | 56 | | | (11) | | | 129 | | | 120 | | | 8 | | | 2,580 | | | 2,143 | | | 20 | |
Total Merchandise | 647 | | | 621 | | | 4 | | | 2,163 | | | 1,921 | | | 13 | | | 3,343 | | | 3,093 | | | 8 | |
Intermodal | 654 | | | 722 | | | (9) | | | 499 | | | 527 | | | (5) | | | 763 | | | 730 | | | 5 | |
Coal | 185 | | | 155 | | | 19 | | | 633 | | | 533 | | | 19 | | | 3,422 | | | 3,439 | | | — | |
Trucking | — | | | — | | | — | | | 233 | | | 230 | | | 1 | | — | | | — | | | — | |
Other | — | | | — | | | — | | | 178 | | | 202 | | | (12) | | | — | | | — | | | — | |
Total | 1,486 | | | 1,498 | | | (1) | % | | $ | 3,706 | | | $ | 3,413 | | | 9 | % | | $ | 2,494 | | | $ | 2,278 | | | 9 | % |
| | | | | | | | | | | | | | | | | |
|
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
CSX Q1 2023 Form 10-Q p.25
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Volume and Revenue (Unaudited) |
Volume (Thousands of units); Revenue (Dollars in Millions); Revenue Per Unit (Dollars) |
Third Quarters |
| Volume | | Revenue | | Revenue Per Unit |
| 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
Agricultural | | | | | | | | | | | | | | | | | |
Agricultural and Food Products | 106 |
| | 109 |
| | (3 | )% | | $ | 288 |
| | $ | 295 |
| | (2 | )% | | $ | 2,717 |
| | $ | 2,706 |
| | — | % |
Fertilizers | 68 |
| | 72 |
| | (6 | ) | | 106 |
| | 104 |
| | 2 |
| | 1,559 |
| | 1,444 |
| | 8 |
|
Industrial | | | | | | | | | | | | | | | | | |
Chemicals | 164 |
| | 173 |
| | (5 | ) | | 546 |
| | 542 |
| | 1 |
| | 3,329 |
| | 3,133 |
| | 6 |
|
Automotive | 105 |
| | 115 |
| | (9 | ) | | 269 |
| | 304 |
| | (12 | ) | | 2,562 |
| | 2,643 |
| | (3 | ) |
Metals and Equipment | 64 |
| | 63 |
| | 2 |
| | 178 |
| | 180 |
| | (1 | ) | | 2,781 |
| | 2,857 |
| | (3 | ) |
Housing and Construction | | | | | | | | | | | | | | | | | |
Minerals | 80 |
| | 86 |
| | (7 | ) | | 120 |
| | 125 |
| | (4 | ) | | 1,500 |
| | 1,453 |
| | 3 |
|
Forest Products | 64 |
| | 68 |
| | (6 | ) | | 181 |
| | 191 |
| | (5 | ) | | 2,828 |
| | 2,809 |
| | 1 |
|
Total Merchandise | 651 |
| | 686 |
| | (5 | ) | | 1,688 |
| | 1,741 |
| | (3 | ) | | 2,593 |
| | 2,538 |
| | 2 |
|
Coal | 218 |
| | 207 |
| | 5 |
| | 514 |
| | 467 |
| | 10 |
| | 2,358 |
| | 2,256 |
| | 5 |
|
Intermodal | 718 |
| | 681 |
| | 5 |
| | 446 |
| | 425 |
| | 5 |
| | 621 |
| | 624 |
| | — |
|
Other | — |
| | — |
| | — |
| | 95 |
| | 77 |
| | 23 |
| | — |
| | — |
| | — |
|
Total | 1,587 |
| | 1,574 |
| | 1 | % | | $ | 2,743 |
| | $ | 2,710 |
| | 1 | % | | $ | 1,728 |
| | $ | 1,722 |
| | — | % |
| | | | | | | | | | | | | | | | | |
Nine Months |
| Volume | | Revenue | | Revenue Per Unit |
| 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
Agricultural | | | | | | | | | | | | | | | | | |
Agricultural and Food Products | 341 |
| | 346 |
| | (1 | )% | | $ | 941 |
| | $ | 925 |
| | 2 | % | | $ | 2,760 |
| | $ | 2,673 |
| | 3 | % |
Fertilizers | 223 |
| | 220 |
| | 1 |
| | 353 |
| | 345 |
| | 2 |
| | 1,583 |
| | 1,568 |
| | 1 |
|
Industrial | | | | | | | | | | | | | | | | | |
Chemicals | 508 |
| | 520 |
| | (2 | ) | | 1,664 |
| | 1,622 |
| | 3 |
| | 3,276 |
| | 3,119 |
| | 5 |
|
Automotive | 340 |
| | 349 |
| | (3 | ) | | 892 |
| | 907 |
| | (2 | ) | | 2,624 |
| | 2,599 |
| | 1 |
|
Metals and Equipment | 201 |
| | 196 |
| | 3 |
| | 546 |
| | 531 |
| | 3 |
| | 2,716 |
| | 2,709 |
| | — |
|
Housing and Construction | | | | | | | | | | | | | | | | | |
Minerals | 233 |
| | 230 |
| | 1 |
| | 362 |
| | 345 |
| | 5 |
| | 1,554 |
| | 1,500 |
| | 4 |
|
Forest Products | 198 |
| | 204 |
| | (3 | ) | | 567 |
| | 572 |
| | (1 | ) | | 2,864 |
| | 2,804 |
| | 2 |
|
Total Merchandise | 2,044 |
| | 2,065 |
| | (1 | ) | | 5,325 |
| | 5,247 |
| | 1 |
| | 2,605 |
| | 2,541 |
| | 3 |
|
Coal | 631 |
| | 602 |
| | 5 |
| | 1,566 |
| | 1,282 |
| | 22 |
| | 2,482 |
| | 2,130 |
| | 17 |
|
Intermodal | 2,124 |
| | 2,053 |
| | 3 |
| | 1,328 |
| | 1,249 |
| | 6 |
| | 625 |
| | 608 |
| | 3 |
|
Other | — |
| | — |
| | — |
| | 326 |
| | 254 |
| | 28 |
| | — |
| | — |
| | — |
|
Total | 4,799 |
| | 4,720 |
| | 2 | % | | $ | 8,545 |
| | $ | 8,032 |
| | 6 | % | | $ | 1,781 |
| | $ | 1,702 |
| | 5 | % |
|
| | |
| CSX Q3 2017 Form 10-Q p.32
|
|
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter 2023
Third Quarter 2017
Revenue
Revenue for the thirdTotal revenue increased 9% in first quarter increased $33 million or one percent2023 when compared to the previous year. Thisfirst quarter 2022 primarily due to volume growth was primarily driven byin coal and merchandise, higher fuel recovery, and pricing gains in coalmerchandise and intermodal, partially offset by declineslower intermodal volume.
Merchandise Volume
Chemicals - Decreased due to lower shipments of materials used in the majoritymaking plastics, partially offset by higher shipments of the merchandise markets.energy-related commodities.
Merchandise
Agricultural Sector
Agricultural and Food Products - Volume declinedIncreased due to challengeshigher shipments of feed grain for both the domestic and export markets.
Automotive - Increased due to higher North American vehicle production as semiconductor availability has improved.
Minerals - Increased due to higher shipments of aggregates and cement driven by increased road construction and other infrastructure-related activities.
Forest Products - Increased due to higher shipments of building products, supported by strength in the export marketmulti-family residential construction.
Metals and Equipment - Increased due to higher scrap and steel shipments, as well as a large southeastern grain crop leadingstronger equipment shipments.
Fertilizers - Decreased due to local truck sourcing to feed mills. These declines in short-haul shipments, which were partially offset by gainsslight increases in ethanollong-haul phosphate shipments.
Intermodal Volume
Lower volume was primarily due to decreased international shipments driven by higher productionhigh inventory levels and new business wins.
Fertilizers - Volume declined predominantly due to Hurricane Irma's impact on Central Florida phosphate operations causing reduced production levels and supply chain disruptions.
Industrial Sector
Chemicals - Volume fell,lower imports. Domestic shipments also decreased primarily reflecting sustained challenges in the Eastern crude-by-rail market. This decline offset an increase in shipments of frac sand and petroleum gases due to growth in drilling activity.
Automotive - Volume declined as North American vehicle production fell. Dealership inventory ended the quarter consistent with the prior four-year average.
Metals and Equipment - Volume increased slightly as an increase in equipment moves more than offset declines in steel sheet and scrap.
Housing and Construction Sector
Minerals - Volume fell, reflecting short-term competitive losses to other modes as the Company transitions its customers to the new operating plan.
Forest Products - Volume declined as mill closures and truck competition negatively impacted shipments of paper products. Additionally, lumber shipments were challenged due to the enforcementimpacts of duties on Canadian lumber.a softening truck market.
Coal Volume
Export coal increased due to higher shipments of metallurgical and thermal coal, partially due to the prior year impact from reduced capacity at Curtis Bay coal pier. Domestic Utility Coal - Volume declined reflectingcoal increased due to higher shipments of utility coal including the competitive lossbenefit of short-haul interchange trafficreplenishing stockpiles as well as higher steel and challengesindustrial shipments.
Trucking Revenue
Trucking revenue increased $3 million versus prior year due to higher fuel surcharge.
Other Revenue
Other revenue was $24 million lower primarily resulting from Hurricane Irma, which caused outages at southeastern customer facilities.
Domestic Coke, Iron Orelower intermodal storage and Other - Volume was down, primarily drivenequipment usage, partially offset by iron ore shipments, as a large customer continued to idle its production.
Export Coal - Volume increased as global supply levelsincreases in demurrage and pricing conditions supported strong growth in U.S. coal exports.
higher affiliate revenue.
CSX Q1 2023 Form 10-Q p.26
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| CSX Q3 2017 Form 10-Q p.33
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|
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Expenses
Intermodal
Domestic - VolumeExpenses of $2.2 billion increased one percent as growth with existing customers and ongoing success of CSX’s highway-to-rail conversion initiative more than offset a prior year short-haul competitive loss which cycled mid-quarter and other competitive losses as the Company transitions its customers$111 million, or 5%, in first quarter 2023 when compared to the new operating plan.first quarter 2022.
International - Volume was up 11 percent driven by new customers and strong performance with existing customers as eastern port volumes increased.
Other
Other revenue increased $18 million versus the prior year primarily due to higher incidental charges and lower volume-based refunds.
Expenses
Expenses of approximately $1.9 billion remained relatively consistent, decreasing $2 million year over year. This decrease was due to efficiency savings of $95 million and lower volume related costs of $13 million due to a decrease in gross ton-miles, nearly offset by inflation of $53 million, fuel price increases of $32 million and other items.
Labor and Fringe expense decreased $45 million due to the following:
Inflation of $43 million was driven primarily by increased health and welfare and wage increases.
Efficiency savings of $73 million were driven by reduced management headcount as a result of the 2017 restructuring initiative, as well as lower operating support costs.
Volume-related costs decreased by $4 million.
Other costs decreased by $11 million primarily due to a decrease in pension expense partially offset by other items, none of which were individually significant.
Materials, Supplies and Other expense increased $9 million due to the following:
Additional expense of $13 million resulted from train accidents during the quarter.
Inflation resulted in $8 million of additional cost.
Technology-related asset impairment charges were $5 million.
Efficiency savings of $30 million were primarily related to lower maintenance costs from the reduction in the active locomotive fleet and a reduction in contingent workers.
Volume-related costs decreased by $4 million.
Other costs increased $17 million due to relocation costs and other items, none of which were individually significant.
Depreciation expense increased $10 million primarily due to a larger asset base.
Fuel expense increased $31 million due to the following:
A 19 percent price•An increase drove $32of $39 million was driven by inflation.
•Incentive compensation costs decreased $31 million due to the impacts of accelerated expense for eligible employees in the prior year as well as lower expected payouts.
•Other costs increased $23 million primarily due to increased headcount and training costs.
Purchased Services and Other expense increased $13 million due to the following:
•Operating support costs increased $35 million primarily as a result of inflation, higher scheduled locomotive maintenance costs and increased coal and merchandise volume. These increases were partially offset by lower intermodal expenses.
•Other costs decreased $22 million as a $46 million insurance recovery and the impact of prior year environmental reserve adjustments were partially offset by the inclusion of Pan Am's operations and other non-significant items.
Depreciation and Amortization expense increased $33 million primarily as the result of a 2022 equipment depreciation study as well as a larger asset base.
Fuelcosts increased $33 million primarily resulting from a 6% increase in locomotive fuel prices as well as higher fuel consumption.
Equipment and Other Rents expense decreased $18 million primarily driven by lower net car hire costs resulting from improved days per load across all markets.
Gains on Property Dispositions decreased to $8 million from $27 million in additional fuel expense.the prior year. First quarter 2022 included gains of $20 million related to the sale of property rights to the Commonwealth of Virginia under a multi-phase agreement.
Efficiency savings were $1 million.
Interest Expense
Interest expense increased $22 million primarily due to higher average debt balances and higher interest rates.
Other Income - Net
Other income - net increased $15 million primarily due to higher interest income, partially offset by a decrease in net pension benefit credits.
Income Tax Expense
Income tax expense increased $47 million mostly due to higher earnings before income taxes.
CSX Q1 2023 Form 10-Q p.27
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| CSX Q3 2017 Form 10-Q p.34
|
|
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Equipment and Other Rents expense decreased $8 million due to the following:
Efficiency losses of $9 million were due to increased days per load for automotive and merchandise markets.
Inflation resulted in $2 million of additional cost due to higher rates across most car types.
Volume-related costs were $5 million lower.
Other costs decreased $14 million primarily due to rental income that was previously classified as other income in the prior years being reclassified to operating expense in the current year as well as other items, none of which were individually significant.
Restructuring charge of $1 million was incurred during the quarter.
Interest expense decreased $7 million primarily due to lower average interest rates partially offset by higher average debt balances.
Other income - net decreased$7 million primarily due to prior quarter income from non-operating real estate transactions, which are now included in operating income.
Income tax expense increased $31 million primarily due to increased earnings before income taxes, state legislative changes and non-deductible executive compensation.
Nine Months Results of Operations
Revenue increased $513 million reflecting pricing gains, volume growth, higher fuel recoveries and a $58 million settlement in 2017 related to a customer that did not meet historical volume commitments.
Expenses were higher by $352 million driven primarily by a restructuring charge of $296 million, inflation of $153 million and fuel price increases of $127 million, partially offset by efficiency savings of $308 million.
Operating income increased $161 million primarily due to pricing gains, volume growth and efficiency savings, partially offset by restructuring charges, inflation and increases in fuel price.
Interest expense decreased $17 million primarily due to lower average interest rates partially offset by higher average debt balances.
Other income - net decreased $9 million primarily due to prior quarter income from non-operating real estate transactions, which are now included in operating income, and other non-operating items, none of which were individually significant.
Income tax expense increased $94 million primarily due to increased earnings before income taxes, non-deductible executive compensation, and state legislative changes.
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| CSX Q3 2017 Form 10-Q p.35
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Non-GAAP Measures - Unaudited
CSX reports its financial results in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). CSX also uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP measures do not have standardized definitions and are not defined by U.S. GAAP. Therefore, CSX’s non-GAAP measures are unlikely to be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with GAAP. Reconciliations of non-GAAP measures to corresponding GAAP measures are below.
Adjusted Operating Results
Management believes that adjusted operating income, adjusted operating ratio, adjusted net earnings and adjusted net earnings per share, assuming dilution are important in evaluating the Company’s operating performance and for planning and forecasting future business operations and future profitability. These non-GAAP measures provide meaningful supplemental information regarding operating results because they exclude certain significant items that are not considered indicative of future financial trends. The restructuring charge was tax effected using rates reflective of the applicable tax amounts for each component of the restructuring charge, including an adjustment for the non-deductibility of executive compensation.
|
| | | | | | | | | | | | | | | |
| | For the Quarter ended September 30, 2017 |
(in millions, except operating ratio and net earnings per share, assuming dilution) | | Operating Income | | Operating Ratio | | Net Earnings | | Net Earnings Per Share, Assuming Dilution |
| | | | | | | | |
GAAP Operating Results | | $ | 876 |
| | 68.1 | % | | $ | 459 |
| | $ | 0.51 |
|
Restructuring Charge (a) | | 1 |
| | (0.1 | )% | | 4 |
| | — |
|
Adjusted Operating Results (non-GAAP) | | $ | 877 |
| | 68.0 | % | | $ | 463 |
| | $ | 0.51 |
|
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2017 |
(in millions, except operating ratio and net earnings per share, assuming dilution) | | Operating Income | | Operating Ratio | | Net Earnings | | Net Earnings Per Share, Assuming Dilution |
| | | | | | | | |
GAAP Operating Results | | $ | 2,546 |
| | 70.2 | % | | $ | 1,331 |
| | $ | 1.45 |
|
Restructuring Charge (a) | | 296 |
| | (3.5 | )% | | 193 |
| | 0.21 |
|
Adjusted Operating Results (non-GAAP) | | $ | 2,842 |
| | 66.7 | % | | $ | 1,524 |
| | $ | 1.66 |
|
(a) See Note 1, Nature of Operations and Significant Accounting Policies - Other Items - Restructuring Charge, for additional information.
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| CSX Q3 2017 Form 10-Q p.36
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Free Cash Flow
Management believes that free cash flow is supplemental information useful to investors as it is important in evaluating the Company’s financial performance. More specifically, free cash flow measures cash generated by the business after reinvestment. This measure represents cash available for both equity and bond investors to be used for dividends, share repurchases or principal reduction on outstanding debt. Free cash flow is calculated by using net cash from operations and adjusting for property additions and proceeds and advances from property dispositions. Free cash flow should be considered in addition to, rather than a substitute for, cash provided by operating activities. FreeThe decrease in free cash flow before dividends from the prior year of $160 million is calculated by using net cash from operations and adjusting fordue to higher property additions and certain other investingless cash from operating activities.
The following table reconciles cash provided by operating activities (GAAP measure) to adjusted free cash flow, after restructuring, before dividends (non-GAAP measure). The restructuring charge impact to free cash flow was tax effected using the applicable tax rate of the charge.
|
| | | | | | |
| Nine Months |
(Dollars in millions) | 2017 | 2016 |
Net cash provided by operating activities | $ | 2,861 |
| $ | 2,488 |
|
Property additions | (1,462 | ) | (1,590 | ) |
Other investing activities | 71 |
| 37 |
|
Free Cash Flow (before payment of dividends) | 1,470 |
| 935 |
|
Add back: Cash Payments for Restructuring Charge (after-tax) (a) | 96 |
| — |
|
Adjusted Free Cash Flow Before Dividends (non-GAAP) | $ | 1,566 |
| $ | 935 |
|
| | | | | | | | |
| Three Months |
(Dollars in millions) | 2023 | 2022 |
Net cash provided by operating activities (a) | $ | 1,251 | | $ | 1,299 | |
Property Additions | (443) | | (331) | |
Proceeds and Advances from Property Dispositions | 8 | | 8 | |
Free Cash Flow (before payment of dividends) | $ | 816 | | $ | 976 | |
(a) During the nineNet Cash Provided by Operating Activities for three months ended September 30, 2017,March 31, 2023, includes the Company made cash paymentsimpact of $147 million related to the restructuring charge. The Company also made $7$232 million in payments of retroactive wages and bonuses related to the former CEO and President for previously accrued non-qualified pension benefits that are not included in the restructuring charge.finalized labor agreements.
Operating Statistics (Estimated)
The Company measures and reportsis committed to continuous improvement in safety and service performance. The Company strives for continuous improvement in these measuresperformance through training, innovation and investment. Investment in trainingTraining and technology also is designed to allow CSX employees to have an additional layer of protection that can detect and avoid many types of human factor incidents. The Company's safety programs are designed to prevent incidents that can adversely impact employees, customers and communities. Technological innovations that can detect and avoid many types of human factor incidents are designed to serve as an additional layer of protection for the Company's employees. Continued capital investment in the Company's assets, including track, bridges, signals, equipment and detection technology also supports safety performance.
In order
The FRA train accident rate of 3.47 in first quarter 2023 increased by 20% compared to more accurately representprior year. The personal injury frequency index of 1.04 increased 27% compared to prior year. Safety is a guiding principle at CSX, and the Company’s operating performance, CSX has revised the way it calculates train velocity and terminal dwell effective third quarter 2017. These revisions are consistent with the principles of Precision Scheduled Railroading. Updated definitions for each key performance measure are included beneath the Operating Statistics table. Prior periods have been restated to conform to the current methodology. Details of the changes are as follows:
Train velocity has been expanded to include intermediate dwell, now measuring end-to-end transit time.
Dwell has been expanded to include car dwell time at terminalsCompany remains focused on through trains, now measuring all car dwell time on an end-to-end trip.
These revisions differ from the methodology prescribed by the Surface Transportation Board ("STB") for reporting train velocity and dwell. CSX will continue to report train velocity and dwell, using the prescribed methodology, to the STB on a weekly basis. At the STB's request,instilling safety culture, especially in new hires. CSX is providing additional operating measures on a weekly basis that are available oncommitted to reducing risk and enhancing the Company's website. CSX participatedoverall safety of its employees, customers and communities in a public listening session on October 11, 2017 atwhich the STB regarding CSX's rail service. Information related to this session is available at the STB under matter E.P. 742.Company operates.
CSX Q1 2023 Form 10-Q p.28
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| CSX Q3 2017 Form 10-Q p.37
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CSX’s operatingIn first quarter 2023, velocity increased by 16% and dwell improved by 20% versus prior year. Carload trip plan performance declined in the third quarter of 2017 compared to 2016 due to network fluidity challenges, train accidents and the impacts from Hurricane Irma. Network fluidity was unfavorably impacted early in the quarter as the Company's operations adjusted to the implementation of a new, balanced train plan. The Company expectsintermodal trip plan performance improved by 34% and 10%, respectively. Service metrics continue to improve its level of performance throughwith increased efficiency within terminalsemployee availability and refinementengagement as well as effective execution of the operating plan.
CSX’s FRA reportable personal injury frequency index of 1.41 for the third quarter of 2017 was 11 percent unfavorable to the prior year as a decline in overall injuries was offset by a significant decline in man-hours from fewer employees. The FRA train accident frequency rate of 3.82 for the quarter was 46 percent unfavorable to the prior year. CSX remains committed to ongoing safety improvement, with a focus on reducing injury severity and avoiding catastrophic events.
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| | | | | | | | | | | | | |
| Third Quarters | | Nine Months |
| 2017 | 2016 | Improvement/ (Deterioration) | | 2017 | 2016 | Improvement/ (Deterioration) |
Operations Performance | | | | | | | |
| | | | | | | |
Train Velocity (Miles per hour)(a) | 14.0 |
| 14.9 |
| (6 | )% | | 14.7 |
| 15.2 |
| (3 | )% |
Dwell (Hours)(a) | 12.1 |
| 11.2 |
| (8 | )% | | 11.5 |
| 11.2 |
| (3 | )% |
| | | | | | | |
On-Time Originations | 74 | % | 84 | % | (12 | )% | | 81 | % | 84 | % | (4 | )% |
On-Time Arrivals | 48 | % | 54 | % | (11 | )% | | 57 | % | 56 | % | 2 | % |
| | | | | | | |
Safety | | | | | | | |
FRA Personal Injury Frequency Index | 1.41 |
| 1.27 |
| (11 | )% | | 1.17 |
| 1.04 |
| (13 | )% |
FRA Train Accident Rate | 3.82 |
| 2.61 |
| (46 | )% | | 2.99 |
| 2.69 |
| (11 | )% |
| | | | | | | | | | | | | | | |
| First Quarters | | |
| 2023 | 2022 | Improvement/ (Deterioration) | | | | |
Operations Performance | | | | | | | |
Train Velocity (Miles per hour) (a) | 18.5 | | 16.0 | | 16 | % | | | | |
Dwell (Hours) (a) | 9.0 | | 11.2 | | 20 | % | | | | |
Cars Online (a) | 126,293 | | 138,466 | | 9 | % | | | | |
On-Time Originations (a) | 84 | % | 65 | % | 29 | % | | | | |
On-Time Arrivals (a) | 77 | % | 57 | % | 35 | % | | | | |
Carload Trip Plan Performance (a) | 86 | % | 64 | % | 34 | % | | | | |
Intermodal Trip Plan Performance (a) | 96 | % | 87 | % | 10 | % | | | | |
Fuel Efficiency | 1.02 | | 1.01 | | (1) | % | | | | |
| | | | | | | |
Revenue Ton-Miles (Billions) | | | | | | | |
Merchandise | 32.3 | | 31.2 | | 4 | % | | | | |
Coal | 9.2 | | 7.6 | | 21 | % | | | | |
Intermodal | 6.9 | | 7.6 | | (9) | % | | | | |
Total Revenue Ton-Miles | 48.4 | | 46.4 | | 4 | % | | | | |
| | | | | | | |
Total Gross Ton-Miles (Billions) | 94.4 | | 91.4 | | 3 | % | | | | |
| | | | | | | |
Safety | | | | | | | |
FRA Personal Injury Frequency Index (a) | 1.04 | | 0.82 | | (27) | % | | | | |
FRA Train Accident Rate (a) | 3.47 | | 2.88 | | (20) | % | | | | |
(a) The methodology for calculating train velocity and dwell differThese metrics do not include results from that prescribed by the STB. CSXnetwork acquired from Pan Am. These metrics will continuebe updated to report train velocity and dwell, usinginclude the prescribed methodology, to the STB on a weekly basis.
Pan Am network results as data becomes available.
Certain operating statistics are estimated and can continue to be updated as actuals settle.
The methodology for calculating train velocity, dwell, cars online and trip plan performance differs from that used by the Surface Transportation Board. The Company will continue to report these metrics to the Surface Transportation Board using the prescribed methodology.
Key Performance Measures Definitions
Train Velocity - Average train speed between origin and destination in miles per hour (does not include locals, yard jobs, work trains or passenger trains). Train velocity measures the profiled schedule of trains (from departure to arrival and all interim time), and train profiles are periodically updated to align with a changing operation.
Dwell - Average amount of time in hours between car arrival to and departure from the yard.
Cars Online - Average number of active freight rail cars on lines operated by CSX, excluding rail cars that are being repaired, in storage, those that have been sold, or private cars dwelling at a customer location more than one day.
On-Time Originations - Percent of scheduled road trains that depart the origin yard on-time or ahead of schedule.
On-Time Arrivals - Percent of scheduled road trains that arrive at the destination yard on-time.on-time to within two hours of scheduled arrival.
Carload Trip Plan Performance - Percent of measured cars destined for a customer that arrive at or ahead of the original estimated time of arrival, notification or interchange (as applicable).
Intermodal Trip Plan Performance - Percent of measured containers destined for a customer that arrive at or ahead of the original estimated time of arrival, notification or interchange (as applicable).
Fuel Efficiency - Gallons of locomotive fuel per 1,000 gross ton-miles.
Revenue Ton-Miles (RTM's) - The movement of one revenue-producing ton of freight over a distance of one mile.
Gross Ton-Miles (GTM's) - The movement of one ton of train weight over one mile. GTM's are calculated by multiplying total train weight by distance the train moved. Total train weight is comprised of the weight of the freight cars and their contents.
FRA Personal Injury Frequency Index - Number of FRA-reportable injuries per 200,000 man-hours.
FRA Train Accident Rate - Number of FRA-reportable train accidents per million train-miles.
CSX Q1 2023 Form 10-Q p.29
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| CSX Q3 2017 Form 10-Q p.38
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The following are material changes in the significant cash flows, sources of cash and liquidity, capital investments, consolidated balance sheets and sources of liquidity andworking capital, which provide an update to the discussion included in CSX's most recent annual report on Form 10-K.
Material Changes in Consolidated Balance Sheets and Significant Cash Flows
Consolidated Balance Sheets
Total assets increased $159 million from year end primarily due to an increase in net properties of $429 million, partially offset by a decrease in cash and short-term investment activity of $316 million. Total liabilities and shareholders' equity combined increased $159 million from year end primarily due to net earnings of $1.3 billion, an increase in net debt of $514 million and an increase in taxes payable of $193 million mostly due to a temporary tax payment extension for companies in areas affected by Hurricane Irma. These increases were partially offset by share repurchases of $1.8 billion.
Significant Cash Flows
The following chart highlights the operating, investing and financing components of the net decreasedecreases of $667 million and $303 million in cash and cash equivalents of $12 million as compared to a net decrease of $25 million for operating, investing and financing activities for ninethree months ended 20172023 and 2016,2022, respectively.
•Cash provided by operating activities increased $373decreased $48 million primarily driven by a temporary tax payment extension for companies in areas affected by Hurricane Irma, higherunfavorable working capital activities, including the payments of $232 million for retroactive wages and other activities, and higher net earnings. These increases werebonuses related to finalized labor agreements. This decrease was partially offset by payments related to restructuring activities.higher cash-generating income.
•Cash used in investing activities increased $186$112 million primarily driven byas a result of higher property additions and higher net purchases of short-term investments partially offset by lower property additions.investments.
•Cash used in financing activities increased $174$204 million primarily due to higher share repurchases, partially offsetdriven by higher net debt issuedrepayments and increased share repurchases.
Sources of Cash and Liquidity and Uses of Cash
As of the end of first quarter 2023, CSX had $1.5 billion of cash, cash equivalents and short-term investments. CSX uses current cash balances for general corporate purposes, which may include capital expenditures, working capital requirements, reduction or refinancing of outstanding indebtedness, redemptions and repurchases of CSX common stock, dividends to shareholders, acquisitions and other business opportunities, and contributions to the Company's qualified pension plan. See Note 7, Debt and Credit Agreements.
The Company has multiple sources of liquidity, including cash generated from operations and financing sources. The Company filed a prior year repayment of seller-financed assets that did not repeat inshelf registration statement with the current year.
Projected capital investments for 2017 are expected to be $2.1 billion, including approximately $270 million for Positive Train Control ("PTC"). Of the 2017 investment, over half willSEC on February 16, 2022, which may be used to sustainissue debt or equity securities at CSX’s discretion, subject to market conditions and CSX Board authorization. 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 securities on acceptable terms at any given time, or at all. During the core infrastructure. The remaining amounts will be allocated to projects supporting productivity initiatives, service enhancements and profitable growth.three months ended 2023, CSX intends to fund capital investments through cash generated from operations.
did not issue any long-term debt.
CSX Q1 2023 Form 10-Q p.30
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| CSX Q3 2017 Form 10-Q p.39
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has incurred significant capital costs in connection with the implementation of PTC and has substantial work ahead. CSX estimates that the total multi-year cost of PTC implementation will be approximately $2.4 billion. This estimate includes costs for installing the new system along tracks, upgrading locomotives, adding communication equipment and developing new technologies. Total PTC spending through September 2017 was $2.0 billion.
Liquidity and Working Capital
As of the end of third quarter 2017, CSX had $704 million of cash, cash equivalents and short-term investments. CSX has a $1.0$1.2 billion unsecured, revolving credit facility backed by a diverse syndicate of banks. This facilitybanks that expires in May 2020 and as of the date of this filing,February 2028. At March 31, 2023, the Company hashad no outstanding balances under this facility. The Company also has a commercial paper program, backed by the revolving credit facility, under which the Company may issue unsecured commercial paper notes up to a maximum aggregate principal amount of $1.0 billion outstanding at any one time. At March 31, 2023, the Company had no outstanding debt under the commercial paper program.
Planned capital investments for 2023 are expected to be approximately $2.3 billion. Of the 2023 investment, approximately 75% is expected to be used to sustain the core infrastructure and operating equipment. The remaining amounts will be used to promote profitable growth, including projects supporting service enhancements and productivity. CSX uses currentintends to fund capital investments primarily through cash balances for general corporate purposes, which may include reduction or refinancing of outstanding indebtedness, capital expenditures, working capital requirements, contributionsgenerated from operations.
Material Changes in the Consolidated Balance Sheets and Working Capital
Consolidated Balance Sheets
Total assets decreased $434 million from year end primarily due to the Company's qualified pension plan, redemptions$667 million decrease in cash as noted above. This decrease was partially offset by a $64 million increase in accounts receivable, $42 million of which relates to an insurance recovery, as well as a $51 million increase in net property consistent with planned capital expenditures.
Total liabilities decreased $143 million from year end primarily due to a $340 million decrease in labor and fringe benefits payable and a $140 million decrease in current debt driven by the maturity of secured equipment notes. The decrease in labor and fringe benefits payable was driven by payouts of accrued retroactive wages and bonuses as well as incentive compensation. These decreases were partially offset by an increase in income and other taxes payable of $250 million due to the timing of tax payments. Total shareholders' equity decreased $291 million from year end primarily driven by share repurchases of CSX common stock$1.1 billion and dividends to shareholders. See Note 7, Debt and Credit Agreements.paid of $226 million, partially offset by net earnings of $987 million.
The Company has a receivables securitization facility with a three-year term scheduled to expire in September 2019. The purpose of this facility is to provide an alternative to commercial paper and a low cost source of short-term liquidity of up to $200 million, depending on eligible receivables balances. As of the date of this filing, the Company has no outstanding balances under this facility.
Working capital can also beis considered a measure of a company's ability to meet its short-term needs. CSX had a working capital surplus of $97 million and $447 million$1.0 billion as of September 30, 2017March 31, 2023 and $1.4 billion as of December 30, 2016, respectively. The31, 2022. This decrease in working capitalof $344 million since year end of $350 million is primarily due to cash paid for share repurchases of $1.8$1.1 billion, property additions of $1.5 billion$443 million and dividends paid of $530 million. These decreases were$226 million, partially offset by cash provided from operations of $2.9 billion and net debt issued of $518 million.
operations. The Company's working capital balance varies due to factors such as the timing of scheduled debt payments and changes in cash and cash equivalent balances as discussed above. The Company continues to maintain adequate liquidity to satisfy current liabilities and maturing obligations when they come due. CSX has sufficient financial capacity, including its revolving credit facility, trade receivable facilitycommercial paper program 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. CSX is currently reviewing its cash deployment strategy with respect to capital structure and shareholder distributions and is committed to an investment grade credit profile.
Contractual Obligations and Commercial Commitments
CSXT has a commitment under a long-term maintenance program agreement that covers a portion of CSXT’s fleet of locomotives. The program costs are based on the maintenance cycle for each covered locomotive, which is determined by the asset's age and type. Expected future costs may change as required maintenance schedules are revised and locomotives are placed into or removed from service. Under CSXT’s current obligations, the agreement will expire no earlier than 2031. On August 9, 2017, the Company exercised certain rights under the agreement, which resulted in a reduction of the locomotive fleet covered from 50% as of December 30, 2016 to an estimated 34% of locomotives beginning August 2018. As a result, the total remaining payments decreased from approximately $5.0 billion at December 30, 2016 to an estimated $1.7 billion at September 30, 2017.
CSX Q1 2023 Form 10-Q p.31
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| CSX Q3 2017 Form 10-Q p.40
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CSX is committed to returning cash to shareholders and maintaining an investment-grade credit profile. Capital structure, capital investments and cash distributions, including dividends and share repurchases, are reviewed at least annually by the Board of Directors. Management's assessment of market conditions and other factors guides the timing and volume of repurchases. Future share repurchases are expected to be funded by cash on hand, cash generated from operations and debt issuances.
Completed Transactions
Acquisition of Pan Am Systems, Inc.
On June 1, 2022, CSX acquired Pan Am for a purchase price of $600 million. The results of Pan Am's operations and its cash flows were consolidated prospectively.
Sale of Property Rights to the Commonwealth of Virginia
On March 26, 2021, the Company entered into a comprehensive agreement to sell certain property rights in three CSX-owned line segments to the Commonwealth of Virginia (“Commonwealth”) over three phases. The timing and amount of gains recognized were based on the allocation of fair value to each conveyance, the timing of conveyances and collectability. Over the course of this transaction, which was completed in 2022, total proceeds of $525 million were collected and total gains of $493 million were recognized. A gain of $20 million was recognized in first quarter 2022 related to the closing of the second phase.
Guaranteed Notes Issued By CSXT
In 2007, CSXT, a wholly-owned subsidiary of CSX Corporation, issued in a registered public offering $381 million of equipment notes, which were fully and unconditionally guaranteed by CSX Corporation. These notes matured on January 15, 2023.
In accordance with SEC rules, including amendments adopted in 2020, CSX is not required to present separate condensed consolidating financial information for wholly-owned subsidiaries who issued or guaranteed notes. Additionally, presentation of combined summary financial information regarding subsidiary issuers and guarantors is not required because the assets, liabilities and results of operations of the combined issuers and guarantors of the notes are not materially different from the corresponding amounts presented in the consolidated financial statements.
LABOR AGREEMENTS
Approximately 17,300 of the Company's approximately 22,600 employees are members of a rail labor union. As of December 2, 2022, all 12 rail unions at CSX that participated in national bargaining were covered by national agreements with the Class I railroads and CSX-specific agreements that will remain in effect through December 31, 2024.
CSX Q1 2023 Form 10-Q p.32
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates in reporting the amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and certain revenues and expenses during the reporting period. Actual results may differ from those estimates. These estimates and assumptions are discussed with the Audit Committee of the Board of Directors on a regular basis. Consistent with the prior year, significant estimates using management judgment are made for the areas below. For further discussion of CSX's critical accounting estimates, see the Company's most recent annual report on Form 10-K.
casualty,•personal injury and environmental and legal reserves;
•pension and post-retirement medical plan accounting;
•depreciation policies for assets under the group-life method; and
income taxes.•goodwill and other intangible assets.
FORWARD-LOOKING STATEMENTS
Certain statements in this report and in other materials filed with the SEC,Securities and Exchange Commission, as well as information included in oral statements or other written statements made by the Company, are forward-looking statements. The Company intends for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements within the meaning of the Private Securities Litigation Reform Act may contain, among others, statements regarding:
•projections and estimates of earnings, revenues, margins, volumes, rates, cost-savings, expenses, taxes or other financial items;
•expectations as to results of operations and operational initiatives;
•expectations as to the effect of claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements on the Company's financial condition, results of operations or liquidity;
•management's plans, strategies and objectives for future operations, capital expenditures, workforce levels, dividends, share repurchases, safety and service performance, proposed new services and other 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 "will," "should," “believe,” “expect,” “anticipate,” “project,” “estimate,” “preliminary” and similar expressions. The Company cautions against placing undue reliance on forward-looking statements, which reflect its good faith beliefs with respect to future events and are based on information currently available to it as of the date the forward-looking statement is made. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the timing when, or by which, such performance or results will be achieved.
CSX Q1 2023 Form 10-Q p.33
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| CSX Q3 2017 Form 10-Q p.41
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements are subject to a number of risks and uncertainties and actual performance or results could differ materially from those anticipated by any forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statement. If the Company does update any forward-looking statement, no inference should be drawn that the Company will make additional updates with respect to that statement or any other forward-looking statements. The following important factors, in addition to those discussed in Part II,I, Item 1A (Risk Factors)Risk Factors of CSX's most recent annual report on Form 10-K and elsewhere in this report, may cause actual results to differ materially from those contemplated by any forward-looking statements:
•legislative, regulatory or legal developments involving transportation, including rail or intermodal transportation, the environment, hazardous materials, taxation, international trade and initiatives to further regulate the rail industry;
•the outcome of litigation, claims and other contingent liabilities, including, but not limited to, those related to fuel surcharge, environmental matters, taxes, shipper and rate claims subject to adjudication, personal injuries and occupational illnesses;
•changes in domestic or international economic, political or business conditions, including those affecting the transportation industry (such as the impact of industry competition, conditions, performance and consolidation) and the level of demand for products carried by CSXT;
•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, equipment or equipment;supply chain;
•competition from other modes of freight transportation, such as trucking and competition and consolidation or financial distress within the transportation industry generally;
•the cost of compliance with laws and regulations that differ from expectations (including those associated with PTC implementation), as well as costs, penalties and operational and liquidity impacts associated with noncompliance with applicable laws or regulations;
•the impact of increased passenger activities in capacity-constrained areas, including potential effects of high speed rail initiatives, or regulatory changes affecting when CSXT can transport freight or service routes;
•unanticipated conditions in the financial markets that may affect timely access to capital markets and the cost of capital, as well as management's decisions regarding share repurchases;
•changes in fuel prices, surcharges for fuel and the availability of fuel;
•the impact of natural gas prices on coal-fired electricity generation;
•the impact of global supply and price of seaborne coal on CSXT's export coal market;
CSX Q1 2023 Form 10-Q p.34
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
•availability of insurance coverage at commercially reasonable rates or insufficient insurance coverage to cover claims or damages;
•the inherent business risks associated with safety and security, including the transportation of hazardous materials or a cybersecurity attack which would threaten the availability and vulnerability of information technology;
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| CSX Q3 2017 Form 10-Q p.42
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
•adverse economic or operational effects from actual or threatened war or terrorist activities and any governmental response;
•loss of key personnel or the inability to hire and retain qualified employees;
•labor and benefit costs and labor difficulties, including stoppages affecting either the Company's operations or customers' ability to deliver goods to the Company for shipment;
•the Company's success in implementing its strategic, financial and operational initiatives, including Precision Scheduled Railroading;acquisitions;
•the impact of conditions in the real estate market on the Company's ability to sell assets;
•changes in operating conditions and costs, including the impacts of inflation, or commodity concentrations;
•the impacts of a public health crisis and any policies or initiatives instituted in response; and
•the inherent uncertainty associated with projecting economic and business conditions.
Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified elsewhere in this report and in CSX's other SEC reports, which are accessible on the SEC's website at www.sec.gov and the Company's website at www.csx.com. The information on the CSX website is not part of this quarterly report on Form 10-Q.
CSX Q1 2023 Form 10-Q p.35
CSX CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided under Part II, Item 7A (Quantitative and Qualitative Disclosures about Market Risk) of CSX's most recent annual report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2017,March 31, 2023, 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 September 30, 2017,March 31, 2023, 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 thirdfirst quarter of 20172023 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
CSX Q1 2023 Form 10-Q p.36
CSX CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that the Company reasonably believes will exceed a specified threshold. Pursuant to SEC amendments to this Item, the Company will be using a threshold of $1 million for such proceedings. For further details, please refer to Note 5. 5, Commitments and Contingencies of this quarterly report on Form 10-Q. Also refer to Part I, Item 3.3, Legal Proceedings in CSX's most recent annual report on Form 10-K.
Item 1A. Risk Factors
For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussed under Part II,I, Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations)1A (Risk Factors) of CSX's most recent annual report on Form 10-K. See also Part I, Item 2 (Forward-Looking Statements) of this quarterly report on Form 10-Q.
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| CSX Q3 2017 Form 10-Q p.43
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Item 2. CSX Purchases of Equity Securities
CSX purchases its ownThe Company continues to repurchase shares for two primary reasons: (1) to further its goals under its share repurchase program and (2) to fund the Company’s contribution required to be paid in CSX common stock under a 401(k) plan that covers certain union employees.
In July 2017, the Board of Directors approved an additional $500 million of share repurchase authority under the share repurchase$5 billion program announced in April 2017, bringing the total program size to $1.5 billion. AsJuly 2022. Total repurchase authority remaining as of October 2, 2017, the Company had completed allMarch 31, 2023, was $2.2 billion. For more information about share repurchases, under this program. During the third quartersof 2017 and 2016, the Company repurchased approximately $1 billion, or 20 million shares, and $263 million, or 10 million shares, respectively.
Management's assessment of market conditions and other factors guides the timing and volume of repurchases. Future share repurchases are expected to be funded by cash on hand, cash generated from operations and debt issuances. Shares are retired immediately upon repurchase. In accordance with the Equity Topic in the ASC, the excess of repurchase price over par value is recorded in retained earnings. Generally, retained earnings is only impacted by net earnings and dividends.
see Note 2, Earnings Per Share. Share repurchase activity for the thirdfirst quarter 20172023 was as follows:
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| CSX Purchases of Equity Securities for the Quarter | |
First 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 Balance | | | | $ | 3,271,977,916 | |
January 1 - January 31, 2023 | 6,996,932 | | $ | 30.95 | | 6,996,932 | | 3,055,413,621 | |
February 1 - February 28, 2023 | 11,211,300 | | 31.15 | | 11,211,300 | | 2,706,147,435 | |
March 1 - March 31, 2023 | 16,948,724 | | 29.59 | | 16,948,724 | | 2,204,587,299 | |
Ending Balance | 35,156,956 | | $ | 30.36 | | 35,156,956 | | $ | 2,204,587,299 | |
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| CSX Purchases of Equity Securities for the Quarter | |
Third Quarter | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
Beginning Balance | | | | $ | 512,661,389 |
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July 1 - July 31, 2017 | 9,920,229 |
| $ | 52.24 |
| 9,805,644 |
| 500,360,263 |
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August 1 - August 31, 2017 | 6,642,545 |
| 49.85 |
| 6,642,545 |
| 169,256,400 |
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September 1 - September 30, 2017 | 3,129,053 |
| 51.64 |
| 3,128,708 |
| 7,696,097 |
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Ending Balance | 19,691,827 |
| $ | 51.34 |
| 19,576,897 |
| $ | 7,696,097 |
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(a) The difference of 114,930 shares between the "Total Number of Shares Purchased" and the "Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs" for the quarter represents shares purchased to fund the Company's contribution to a 401(k) plan that covers certain union employees.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
None
CSX Q1 2023 Form 10-Q p.37
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| CSX Q3 2017 Form 10-Q p.44
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Item 6. Exhibits
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Exhibit designation | Nature of exhibit | Previously filed as exhibit to |
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Exhibit designation | Nature of exhibit | Previously filed as exhibit to |
10.1 | $1,200,000,000 Five-Year Revolving Credit Agreement, dated as of February 28, 2023, among CSX Corporation, as borrower, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent | March 3, 2023 Exhibit 10.1, Form 8-K |
Officer certifications:10.2* ** | | |
31*10.3* ** | | |
32*10.4* ** | | |
10.5* ** | | |
10.6* ** | | |
10.7* ** | | |
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Officer certifications: |
31* | | |
32* | | |
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Interactive data files: |
101* | The following financial information from CSX Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017March 31, 2023 filed with the SEC on October 18, 2017,April 20, 2023, formatted in inline XBRL includes: (i) consolidated income statements for the fiscal periodsquarters ended September 30, 2017March 31, 2023, and September 23, 2016,March 31, 2022, (ii) condensed consolidated comprehensive income statements for the fiscal periodsquarters ended September 30, 2017March 31, 2023, and September 23, 2016March 31, 2022, (iii) consolidated balance sheets at September 30, 2017March 31, 2023, and December 30, 2016,31, 2022, (iv) consolidated cash flow statements for the fiscal periodsthree months ended September 30, 2017March 31, 2023, and September 23, 2016,March 31, 2022, (v) consolidated statement of changes in shareholders' equity for the quarters ended March 31, 2023, and (v)March 31, 2022, and (vi) the notes to consolidated financial statements.
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104 | Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101) | |
* Filed herewith | | |
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| CSX Q3 2017 Form 10-Q p.45
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* Filed herewith | | |
** Management contract or compensatory plan or arrangement | |
CSX Q1 2023 Form 10-Q p.38
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CSX CORPORATION
(Registrant)
By:/s/ ANDREW L. GLASSMANANGELA C. WILLIAMS
Andrew L. GlassmanAngela C. Williams
Vice President and Controller
Chief Accounting Officer
(Principal Accounting Officer)
Dated: October 18, 2017April 20, 2023
CSX Q1 2023 Form 10-Q p.39
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| CSX Q3 2017 Form 10-Q p.46
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