SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | ||
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,June 30, 2006
OR
| ¨ | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number 1-8022
CSX CORPORATION
(Exact name of registrant as specified in its charter)
| Virginia | 62-1051971 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
500 Water Street, 15th Floor, Jacksonville, FL 32202 | (904) 359-3200 | |||
| (Address of principal executive offices) (Zip Code) | (Telephone number, including area code) |
No Change
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one)
Large Accelerated Filer Yesx Accelerated Filer¨ Non-accelerated Filer¨
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes¨ Nox
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
the latest practicable date, March 31,June 30, 2006: 221,586,156221,765,408 shares.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31,June 30, 2006
INDEX
| Page | ||||||||
Item 1: | ||||||||
| Financial Statements | 3 | |||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
Item 2: | ||||||||
| 30 | ||||||||
Item 3: | ||||||||
| 45 | ||||||||
Item 4: | ||||||||
| 45 | ||||||||
| PART II:OTHER INFORMATION | 45 | |||||||
Item 1: | ||||||||
| 45 | ||||||||
Item 1A: | ||||||||
| Risk Factors | 45 | |||||||
Item 2: | ||||||||
| 46 | ||||||||
Item 3: | ||||||||
| 47 | ||||||||
Item 4: | ||||||||
| 47 | ||||||||
Item 5: | Other Information | 48 | ||||||
Item | ||||||||
| Exhibits | 48 | |||||||
2
(Dollars in Millions, Except Per Share Amounts)
| First Quarters | ||||||||
| 2006 | 2005 | |||||||
Operating Revenue | $ | 2,331 | $ | 2,108 | ||||
Operating Expense: | ||||||||
| Labor and Fringe | 720 | 696 | ||||||
| Materials, Supplies and Other | 453 | 468 | ||||||
| Depreciation | 211 | 205 | ||||||
| Fuel | 253 | 179 | ||||||
| Building and Equipment Rent | 123 | 132 | ||||||
| Inland Transportation | 56 | 54 | ||||||
| Conrail Rents, Fees and Services | 19 | 20 | ||||||
| Total Operating Expense | 1,835 | 1,754 | ||||||
Operating Income | 496 | 354 | ||||||
| Other Income (Expense) — Net (Note 8) | (3 | ) | (2 | ) | ||||
| Interest Expense | (98 | ) | (114 | ) | ||||
Earnings from Continuing Operations before Income Taxes | 395 | 238 | ||||||
| Income Tax Expense | (150 | ) | (84 | ) | ||||
Earnings from Continuing Operations | 245 | 154 | ||||||
| Discontinued Operations — Net of Tax (Note 3) | — | 425 | ||||||
Net Earnings | $ | 245 | $ | 579 | ||||
Earnings Per Common Share | ||||||||
Earnings Per Share (Note 2): | ||||||||
| From Continuing Operations | $ | 1.12 | $ | 0.72 | ||||
| Discontinued Operations | — | 1.97 | ||||||
Net Earnings | $ | 1.12 | $ | 2.69 | ||||
Earnings Per Share, Assuming Dilution (Note 2): | ||||||||
| From Continuing Operations | $ | 1.06 | $ | 0.68 | ||||
| Discontinued Operations | — | 1.88 | ||||||
Net Earnings | $ | 1.06 | $ | 2.56 | ||||
Average Common Shares Outstanding (Thousands) | 219,681 | 215,356 | ||||||
Average Common Shares Outstanding, Assuming Dilution (Thousands) | 232,182 | 226,246 | ||||||
Cash Dividends Paid Per Common Share | $ | 0.13 | $ | 0.10 | ||||
| Second Quarters | Six Months | |||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||||
Operating Revenue | $ | 2,421 | $ | 2,166 | $ | 4,752 | $ | 4,274 | ||||||||||
Operating Expense: | ||||||||||||||||||
Labor and Fringe | 718 | 707 | 1,438 | 1,403 | ||||||||||||||
Materials, Supplies and Other | 465 | 439 | 919 | 907 | ||||||||||||||
Depreciation | 216 | 205 | 427 | 410 | ||||||||||||||
Fuel | 288 | 176 | 541 | 355 | ||||||||||||||
Equipment and Other Rents | 131 | 127 | 253 | 259 | ||||||||||||||
Inland Transportation | 62 | 62 | 118 | 116 | ||||||||||||||
Conrail Rents, Fees and Services | 21 | 19 | 40 | 39 | ||||||||||||||
Gain on Insurance Recoveries | (126 | ) | - | (126 | ) | - | ||||||||||||
Total Operating Expense | 1,775 | 1,735 | 3,610 | 3,489 | ||||||||||||||
Operating Income | 646 | 431 | 1,142 | 785 | ||||||||||||||
Other Income (Expense) - Net (Note 10) | 11 | 30 | 8 | 28 | ||||||||||||||
Debt Repurchase Expense | - | (192 | ) | - | (192 | ) | ||||||||||||
Interest Expense | (98 | ) | (110 | ) | (196 | ) | (224 | ) | ||||||||||
Earnings from Continuing Operations before Income Taxes | 559 | 159 | 954 | 397 | ||||||||||||||
Income Tax (Expense) Benefit | (169 | ) | 6 | (319 | ) | (78 | ) | |||||||||||
Earnings from Continuing Operations | 390 | 165 | 635 | 319 | ||||||||||||||
Discontinued Operations - Net of Tax (Note 14) | - | - | - | 425 | ||||||||||||||
Net Earnings | $ | 390 | $ | 165 | $ | 635 | $ | 744 | ||||||||||
| Earnings Per Common Share | ||||||||||||||||||
| Earnings Per Share (Note 2): | ||||||||||||||||||
From Continuing Operations | $ | 1.76 | $ | 0.76 | $ | 2.88 | $ | 1.48 | ||||||||||
Discontinued Operations | - | - | - | 1.97 | ||||||||||||||
Net Earnings | $ | 1.76 | $ | 0.76 | $ | 2.88 | $ | 3.45 | ||||||||||
| Earnings Per Share, Assuming Dilution (Note 2): | ||||||||||||||||||
From Continuing Operations | $ | 1.66 | $ | 0.73 | $ | 2.73 | $ | 1.41 | ||||||||||
Discontinued Operations | - | - | - | 1.88 | ||||||||||||||
Net Earnings | $ | 1.66 | $ | 0.73 | $ | 2.73 | $ | 3.29 | ||||||||||
Average Common Shares Outstanding (Thousands) | 221,908 | 216,418 | 220,794 | 215,887 | ||||||||||||||
Average Common Shares Outstanding, Assuming Dilution (Thousands) | 235,103 | 227,453 | 233,642 | 226,850 | ||||||||||||||
Cash Dividends Paid Per Common Share | $ | 0.13 | $ | 0.10 | $ | 0.26 | $ | 0.20 | ||||||||||
See accompanying Notes to Consolidated Financial Statements.
3
ITEM 1: FINANCIAL STATEMENTS
(Dollars in Millions)
| (Unaudited) | ||||||||
| March 31, | December 30, | |||||||
| 2006 | 2005 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
| Cash and Cash Equivalents | $ | 376 | $ | 309 | ||||
| Short-term Investments | 337 | 293 | ||||||
| Accounts Receivable — Net | 1,202 | 1,202 | ||||||
(net of allowance for doubtful accounts of $111 million and $108 million, respectively) | ||||||||
| Materials and Supplies | 208 | 199 | ||||||
| Deferred Income Taxes | 217 | 225 | ||||||
| Other Current Assets | 107 | 144 | ||||||
Total Current Assets | 2,447 | 2,372 | ||||||
| Properties | 26,850 | 26,538 | ||||||
| Accumulated Depreciation | (6,565 | ) | (6,375 | ) | ||||
Properties — Net | 20,285 | 20,163 | ||||||
| Investment in Conrail (Note 6) | 607 | 603 | ||||||
| Affiliates and Other Companies | 311 | 304 | ||||||
| Other Long-term Assets | 769 | 790 | ||||||
Total Assets | $ | 24,419 | $ | 24,232 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
| Accounts Payable | $ | 965 | $ | 954 | ||||
| Labor and Fringe Benefits Payable | 433 | 565 | ||||||
| Casualty, Environmental and Other Reserves (Note 10) | 309 | 311 | ||||||
| Current Maturities of Long-term Debt | 912 | 936 | ||||||
| Short-term Debt | 4 | 1 | ||||||
| Income and Other Taxes Payable | 237 | 102 | ||||||
| Other Current Liabilities | 94 | 110 | ||||||
Total Current Liabilities | 2,954 | 2,979 | ||||||
| Casualty, Environmental and Other Reserves (Note 10) | 678 | 653 | ||||||
| Long-term Debt | 5,045 | 5,093 | ||||||
| Deferred Income Taxes | 6,081 | 6,082 | ||||||
| Other Long-term Liabilities | 1,386 | 1,471 | ||||||
Total Liabilities | 16,144 | 16,278 | ||||||
Shareholders’ Equity: | ||||||||
| Common Stock, $1 Par Value | 222 | 218 | ||||||
| Other Capital | 1,871 | 1,751 | ||||||
| Retained Earnings | 6,479 | 6,262 | ||||||
| Accumulated Other Comprehensive Loss (Note 7) | (297 | ) | (277 | ) | ||||
Total Shareholders’ Equity | 8,275 | 7,954 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 24,419 | $ | 24,232 | ||||
(Unaudited) June 30, 2006 | December 30, 2005 | |||||||
| ASSETS | ||||||||
Current Assets: | ||||||||
Cash and Cash Equivalents | $ | 320 | $ | 309 | ||||
Short-term Investments | 362 | 293 | ||||||
Accounts Receivable, net of allowance for doubtful accounts of $107 and $108, respectively | 1,204 | 1,202 | ||||||
Materials and Supplies | 202 | 199 | ||||||
Deferred Income Taxes | 241 | 225 | ||||||
Other Current Assets | 66 | 144 | ||||||
Total Current Assets | 2,395 | 2,372 | ||||||
Properties | 27,229 | 26,538 | ||||||
Accumulated Depreciation | (6,672 | ) | (6,375 | ) | ||||
Properties - Net | 20,557 | 20,163 | ||||||
Investment in Conrail (Note 13) | 609 | 603 | ||||||
Affiliates and Other Companies | 318 | 304 | ||||||
Other Long-term Assets | 719 | 790 | ||||||
Total Assets | $ | 24,598 | $ | 24,232 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts Payable | $ | 917 | $ | 954 | ||||
Labor and Fringe Benefits Payable | 457 | 565 | ||||||
Casualty, Environmental and Other Reserves (Note 5) | 306 | 311 | ||||||
Current Maturities of Long-term Debt | 1,375 | 936 | ||||||
Short-term Debt | 3 | 1 | ||||||
Income and Other Taxes Payable | 113 | 102 | ||||||
Other Current Liabilities | 89 | 110 | ||||||
Total Current Liabilities | 3,260 | 2,979 | ||||||
Casualty, Environmental and Other Reserves (Note 5) | 649 | 653 | ||||||
Long-term Debt | 4,567 | 5,093 | ||||||
Deferred Income Taxes | 6,079 | 6,082 | ||||||
Other Long-term Liabilities | 1,440 | 1,471 | ||||||
Total Liabilities | 15,995 | 16,278 | ||||||
| Shareholders’ Equity: | ||||||||
Common Stock, $1 Par Value | 222 | 218 | ||||||
Other Capital | 1,848 | 1,751 | ||||||
Retained Earnings | 6,841 | 6,262 | ||||||
Accumulated Other Comprehensive Loss (Note 9) | (308 | ) | (277 | ) | ||||
Total Shareholders’ Equity | 8,603 | 7,954 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 24,598 | $ | 24,232 | ||||
See accompanying Notes to Consolidated Financial Statements.
4
ITEM 1: FINANCIAL STATEMENTS
(Dollars in Millions)
| First Quarters | ||||||||
| 2006 | 2005 | |||||||
OPERATING ACTIVITIES | ||||||||
| Net Earnings | $ | 245 | $ | 579 | ||||
| Adjustments to Reconcile Net Earnings to Net Cash Provided: | ||||||||
| Depreciation | 212 | 209 | ||||||
| Deferred Income Taxes | 26 | 8 | ||||||
| Gain on Sale of International Terminals — Net of Tax (Note 3) | — | (428 | ) | |||||
| Insurance Proceeds | 50 | — | ||||||
| Other Operating Activities | 50 | (59 | ) | |||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Accounts Receivable | (70 | ) | (14 | ) | ||||
| Other Current Assets | 2 | (41 | ) | |||||
| Accounts Payable | 42 | 84 | ||||||
| Income and Other Taxes Payable | 39 | 31 | ||||||
| Other Current Liabilities | (151 | ) | (60 | ) | ||||
Net Cash Provided by Operating Activities | 445 | 309 | ||||||
INVESTING ACTIVITIES | ||||||||
| Property Additions | (367 | ) | (167 | ) | ||||
| Net Proceeds from Sale of International Terminals (Note 3) | — | 1,108 | ||||||
| Purchase of Minority Interest in an International Terminals’ Subsidiary (Note 3) | — | (110 | ) | |||||
| Purchases of Short-term Investments | (416 | ) | (1,093 | ) | ||||
| Proceeds from Sales of Short-term Investments | 378 | 305 | ||||||
| Other Investing Activities | (15 | ) | — | |||||
Net Cash (Used in) Provided by Investing Activities | (420 | ) | 43 | |||||
FINANCING ACTIVITIES | ||||||||
| Short-term Debt — Net | 2 | (97 | ) | |||||
| Long-term Debt Issued | 3 | 26 | ||||||
| Long-term Debt Repaid | (71 | ) | (112 | ) | ||||
| Dividends Paid | (29 | ) | (22 | ) | ||||
| Stock Options Exercised | 129 | 38 | ||||||
| Other Financing Activities | 8 | 3 | ||||||
Net Cash Provided by (Used in) Financing Activities | 42 | (164 | ) | |||||
| Net Increase in Cash and Cash Equivalents | 67 | 188 | ||||||
CASH AND CASH EQUIVALENTS | ||||||||
| Cash and Cash Equivalents at Beginning of Period | 309 | 522 | ||||||
Cash and Cash Equivalents at End of Period | $ | 376 | $ | 710 | ||||
| Six Months | ||||||||
| 2006 | 2005 | |||||||
| OPERATING ACTIVITIES | ||||||||
Net Earnings | $ | 635 | $ | 744 | ||||
Adjustments to Reconcile Net Earnings to Net Cash Provided: | ||||||||
Depreciation | 430 | 418 | ||||||
Deferred Income Taxes | 6 | (51 | ) | |||||
Gain on Sale of International Terminals - Net of Tax (Note 14) | - | (428 | ) | |||||
Gain on Insurance Recoveries (Note 4) | (126 | ) | - | |||||
Insurance Proceeds (Note 4) | 92 | - | ||||||
Other Operating Activities | (26 | ) | (124 | ) | ||||
Changes in Operating Assets and Liabilities: | ||||||||
Accounts Receivable | (63 | ) | 41 | |||||
Other Current Assets | 66 | (45 | ) | |||||
Accounts Payable | 2 | 16 | ||||||
Income and Other Taxes Payable | (21 | ) | (226 | ) | ||||
Other Current Liabilities | (141 | ) | (16 | ) | ||||
Net Cash Provided by Operating Activities | 854 | 329 | ||||||
| INVESTING ACTIVITIES | ||||||||
Property Additions | (879 | ) | (381 | ) | ||||
Insurance Proceeds (Note 4) | 115 | - | ||||||
Net Proceeds from Sale of International Terminals (Note 14) | - | 1,108 | ||||||
Purchase of Minority Interest in an International Terminals’ Subsidiary (Note 14) | - | (110 | ) | |||||
Purchases of Short-term Investments | (761 | ) | (1,576 | ) | ||||
Proceeds from Sales of Short-term Investments | 718 | 1,679 | ||||||
Other Investing Activities | (15 | ) | 3 | |||||
Net Cash (Used in) Provided by Investing Activities | (822 | ) | 723 | |||||
| FINANCING ACTIVITIES | ||||||||
Short-term Debt - Net | 2 | (98 | ) | |||||
Long-term Debt Issued | 63 | 27 | ||||||
Long-term Debt Repaid | (143 | ) | (1,213 | ) | ||||
Dividends Paid | (57 | ) | (44 | ) | ||||
Stock Options Exercised (Note 2) | 224 | 52 | ||||||
Shares Repurchased (Note 2) | (149 | ) | - | |||||
Other Financing Activities | 39 | 3 | ||||||
Net Cash Provided by (Used in) Financing Activities | (21 | ) | (1,273 | ) | ||||
Net Increase in Cash and Cash Equivalents | 11 | (221 | ) | |||||
| CASH AND CASH EQUIVALENTS | ||||||||
Cash and Cash Equivalents at Beginning of Period | 309 | 522 | ||||||
Cash and Cash Equivalents at End of Period | $ | 320 | $ | 301 | ||||
See accompanying Notes to Consolidated Financial Statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Significant Accounting Policies
Background
CSX Corporation (“CSX” and, together with its subsidiaries, the “company”), based in Jacksonville, FL, is one of the nation’s leading transportation companies. Surface Transportation, which includes the company’s rail and intermodal businesses, provides rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers. CSX’s principal operating company, CSX Transportation Inc. (“CSXT”), operates the largest railroad in the eastern United States with a rail network of approximately 21,000 miles, linking markets in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec. CSX Intermodal Inc. (“Intermodal”), one of the nation’s largest coast-to-coast intermodal transportation providers, is a stand-alone, integrated intermodal company linking customers to railroads via trucks and terminals.
CSX’s other holdings include CSX Hotels, Inc. a resort doing business as The Greenbrier, located in White Sulphur Springs, West Virginia, and CSX Real Property, Inc., an organization responsible for the management, sale, lease, acquisition and development of company properties.
Basis of Presentation
In the opinion of management, the accompanying consolidated financial statements of CSX contain all normal, recurring adjustments necessary to fairly present the following:
Consolidated Balance Sheets of CSX Corporation (“CSX” and, together with its subsidiaries, the “Company”) at March 31,June 30, 2006 and December 30, 2005, and the 2005;
Consolidated Income and Cash Flow Statements for the fiscal quarters and the six months ended March 31,June 30, 2006 and AprilJuly 1, 2005, such adjustments being of a normal, recurring nature. 2005; and
Consolidated Cash Flows Statements for the six months ended June 30, 2006, and July 1, 2005.
Certain prior-year data have been reclassified to conform to the 2006 presentation.
Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted from these interim financial statements. CSX suggests that these financial statements be read in conjunction with the audited financial statements and the notes included in CSX’s most recent Annual Report on Form 10-K, 2006 First Quarterly Report on Form 10-Q and any Current Reports on Form 8-K.
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Significant Accounting Policies, continued
Fiscal Year
CSX follows a 52/53 week fiscal reporting calendar:calendar with the last day of each reporting period ending on a Friday:
The second fiscal quarters of 2006 and 2005 consisted of 13 weeks ending on June 30, 2006 and July 1, 2005, respectively
The six month periods of 2006 and 2005 consisted of 26 weeks ending on June 30, 2006 and July 1, 2005, respectively
Except as otherwise specified, references to quarters“second quarter(s)” or “six months” indicate CSX’s fiscal quarterperiods ending March 31, 2006,June 30 or ending AprilJuly 1 2005 of the year referenced, and comparisons are to the corresponding period of the prior year.
6
NOTE 2. Earnings Per Share
The following table sets forth the computation of basic Earnings Per Shareearnings per share and Earnings Per Share, Assuming Dilution:
| First Quarters | ||||||||
| 2006 | 2005 | |||||||
| Numerator (Millions): | ||||||||
| Earnings from Continuing Operations | $ | 245 | $ | 154 | ||||
| Interest Expense on Convertible Debt — Net of Tax | 1 | 1 | ||||||
| Net Earnings from Continuing Operations, If-Converted | 246 | 155 | ||||||
| Discontinued Operations — Net of Tax | — | 425 | ||||||
| Net Earnings, If-Converted | 246 | 580 | ||||||
| Interest Expense on Convertible Debt — Net of Tax | (1 | ) | (1 | ) | ||||
| Net Earnings | $ | 245 | $ | 579 | ||||
| Denominator (Thousands): | ||||||||
| Average Common Shares Outstanding | 219,681 | 215,356 | ||||||
| Convertible Debt | 9,728 | 9,728 | ||||||
| Stock Options | 2,715 | 980 | ||||||
| Other Potentially Dilutive Common Shares | 58 | 182 | ||||||
| Average Common Shares Outstanding, Assuming Dilution | 232,182 | 226,246 | ||||||
| Earnings Per Share: | ||||||||
| Income from Continuing Operations | $ | 1.12 | $ | 0.72 | ||||
| Discontinued Operations | — | 1.97 | ||||||
| Net Earnings | $ | 1.12 | $ | 2.69 | ||||
| Earnings Per Share, Assuming Dilution: | ||||||||
| Income from Continuing Operations | $ | 1.06 | $ | 0.68 | ||||
| Discontinued Operations | — | 1.88 | ||||||
| Net Earnings | $ | 1.06 | $ | 2.56 | ||||
| First Quarters | ||||||||
| 2006 | 2005 | |||||||
| Number of Stock Options Exercised (Thousands) | 2,866 | 1,084 | ||||||
7
| (Dollars in Millions, Except Per Share Amounts) | Second Quarters | Six Months | ||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||||
Numerator (Millions): | ||||||||||||||||||
Earnings from Continuing Operations | $ | 390 | $ | 165 | $ | 635 | $ | 319 | ||||||||||
Interest Expense on Convertible Debt - Net of Tax | 1 | 1 | 2 | 2 | ||||||||||||||
Net Earnings from Continuing Operations, If-Converted | 391 | 166 | 637 | 321 | ||||||||||||||
Discontinued Operations - Net of Tax | - | - | - | 425 | ||||||||||||||
Net Earnings, If-Converted | 391 | 166 | 637 | 746 | ||||||||||||||
Interest Expense on Convertible Debt - Net of Tax | (1 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||||||
Net Earnings | $ | 390 | $ | 165 | $ | 635 | $ | 744 | ||||||||||
Denominator (Thousands): | ||||||||||||||||||
Average Common Shares Outstanding | 221,908 | 216,418 | 220,794 | 215,887 | ||||||||||||||
Convertible Debt | 9,728 | 9,728 | 9,728 | 9,728 | ||||||||||||||
Stock Options | 3,407 | 1,125 | 3,061 | 1,053 | ||||||||||||||
Other Potentially Dilutive Common Shares | 60 | 182 | 59 | 182 | ||||||||||||||
Average Common Shares Outstanding, Assuming Dilution | 235,103 | 227,453 | 233,642 | 226,850 | ||||||||||||||
Earnings Per Share: | ||||||||||||||||||
Income from Continuing Operations | $ | 1.76 | $ | 0.76 | $ | 2.88 | $ | 1.48 | ||||||||||
Discontinued Operations | - | - | - | 1.97 | ||||||||||||||
Net Earnings | $ | 1.76 | $ | 0.76 | $ | 2.88 | $ | 3.45 | ||||||||||
Earnings Per Share, Assuming Dilution: | ||||||||||||||||||
Income from Continuing Operations | $ | 1.66 | $ | 0.73 | $ | 2.73 | $ | 1.41 | ||||||||||
Discontinued Operations | - | - | - | 1.88 | ||||||||||||||
Net Earnings | $ | 1.66 | $ | 0.73 | $ | 2.73 | $ | 3.29 | ||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2. Earnings Per Share, continued
Basic earnings per share is based upon the weighted-average number of common shares outstanding. Earnings per share, assuming dilution, is based on the weighted-average number of common shares outstanding adjusted for the effect of potentially dilutive common shares from convertible debt and employee stock options and awards.
The following table provides information about stock options exercised:
| (In Thousands) | Second Quarters | Six Months | ||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||
Number of Stock Options Exercised | 2,282 | 382 | 5,148 | 1,466 | ||||||
Certain stock options were excluded from the computation of Earnings Per Share, Assuming Dilution,earnings per share, assuming dilution, since their related option exercise prices were greater than the average market price of the common shares during the period. The following table presents information about potentially dilutive common shares excluded from the computation of earnings per share:
| First Quarters | ||||||||
| 2006 | 2005 | |||||||
| Number of Shares (Thousands) | 620 | 7,431 | ||||||
| Average Exercise / Conversion Price | $ | 57.00 | $ | 47.16 | ||||
| Second Quarters | |||||
| 2006 | 2005 | ||||
Number of Shares (Thousands) | - | 6,774 | |||
Average Exercise Price | N/A | $ | 47.61 | ||
The Emerging Issues Task Force Issue(“EITF”) No. 04-8,The Effect of Contingently Convertible Debt on Diluted Earnings Per Share(“ (“EITF 04-8”), required CSX includedto include approximately 10 million shares underlying its contingently convertible debentures in the computation of Earnings Per Share, Assuming Dilution.
As CSX’s stock price could cause an increase inincreases, so does the exercise of stock options, alsowhich negatively impactingimpacts the calculation of basic earnings per share. However, the Board of Directors has previously authorized CSX to purchase shares of its common stock from time to time in an amount up to approximately $150 million in any fiscal year.year, which may offset some or all of that dilution. During the six months of 2006, CSX has purchased approximately $150 million in shares pursuant to this authority. See Part II, Item 2 of this Quarterly Report on Form 10-Q. On July 18, 2006, the Board of Directors terminated the $150 million share repurchase authority and also granted new authority of up to $500 million. CSX intends to complete the purchase of shares under this new authority from time to time over the next 12 months beginning in the secondthird quarter of 2006.
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. Share-Based Compensation
Adoption of New Accounting Pronouncement
Prior to December 31, 2005, CSX had adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) 148,Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS 148”), on a prospective basis and accordingly recognized expense for stock options granted after December 2002. CSX has not granted stock options after 2003.
Effective December 31, 2005 (the first day of fiscal year 2006.
As of $1.142 billion. Of the gross proceeds,June 30, 2006, CSX will recognize approximately $110$1 million was paid for the purchase of a minority interestpre-tax in an International Terminals’ subsidiary, which the Company acquired during the first quarter of 2005 and divested as part of the saleadditional compensation cost related to DPI. Other related cash transaction costs amounted to approximately $34 million, including resolution of working capital and long-term debt adjustments.
Upon adoption of SFAS 123(R), CSX no longer provides automatic full vesting of share-based compensation when an employee becomes retirement eligible. Most new stock awards are granted under the authorization provided in the CSX Omnibus Incentive Plan. As of June 30, 2006, an additional 6 million shares of stock could be issued under this business are reportedplan.
SFAS 123(R) requires the cash flows resulting from income tax deductions in excess of compensation costs recognized to be classified as Discontinued Operations onfinancing cash flows. This requirement resulted in reduced net operating cash flows and increased net financing cash flows of approximately $38 million for the six months of 2006. Prior to the adoption of SFAS 123(R), CSX presented all income tax benefits from deductions resulting from compensation costs as operating cash flows in the Consolidated Income Statement for fiscal year 2005.
8Cash Flow Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. Discontinued Operations,Share-Based Compensation, continued
Total pre-tax expense associated with share-based compensation and liabilitiesits related income tax benefit is as follows:
| Second Quarters | Six Months | |||||||||
| (Dollars in Millions) | 2006 | 2005 | 2006 | 2005 | ||||||
Share-Based Compensation Expense | $ 9 | $ 10 | $ 12 | $ 17 | ||||||
Income Tax Benefit | 3 | 4 | 4 | 6 | ||||||
The following table illustrates the pro forma effect on net earnings and earnings per share prior to the adoption of SFAS 123(R). This table only shows last year’s second quarter and six months pro forma amounts since the company adopted the fair value recognition provisions of SFAS 123(R) in the first quarter of 2006. Therefore, expenses are recognized in the Consolidated Income Statement for all unvested share-based compensation in 2006. The table below is not applicable for pro forma amounts for 2006 and forward.
| Second Quarter | Six Months | |||||
| (Dollars in Millions, Except Per Share Amounts) | 2005 | 2005 | ||||
Net Earnings - As Reported | $ 165 | $ 744 | ||||
Add: Share-Based Employee Compensation Expense Included in Reported Net Income - Net of Tax | 7 | 11 | ||||
Deduct: Total Share-Based Employee Compensation Expense Determined under the Fair Value Based Method for All Awards - Net of Tax | (8 | ) | (14 | ) | ||
Net Earnings - Pro Forma | $ 164 | $ 741 | ||||
Interest Expense on Convertible Debt - Net of Tax | 1 | 2 | ||||
Net Earnings, If-Converted - Pro Forma | $ 165 | $ 743 | ||||
Earnings Per Share: | ||||||
Basic - As Reported | $ 0.76 | $ 3.45 | ||||
Basic - Pro Forma | $ 0.76 | $ 3.43 | ||||
Diluted - As Reported | $ 0.73 | $ 3.29 | ||||
Diluted - Pro Forma | $ 0.73 | $ 3.28 | ||||
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. Share-Based Compensation, continued
Stock Options
Outstanding stock options have 10-year terms. The exercise price for options granted equals the market price of the underlying stock on the date of grant. A summary of CSX’s stock option activity and related information through June 2006 is as follows:
| Shares Outstanding (000s) | Weighted- Average Exercise Price | |||||
Outstanding at December 31, 2005 | 17,076 | $ | 40.26 | |||
Granted | - | N/A | ||||
Expired or Cancelled | (137 | ) | 43.39 | |||
Exercised | (5,148 | ) | 43.44 | |||
Outstanding at June 30, 2006 | 11,791 | 38.84 | ||||
Exercisable at June 30, 2006 | 7,810 | $ | 39.13 | |||
| Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value (millions) | |||||
Outstanding at June 30, 2006 | 4.67 | $ | 367 | |||
Exercisable at June 30, 2006 | 4.25 | 241 | ||||
The total cash flows from the exercise of stock options were $95 million and $14 million for the second quarters of 2006 and 2005, respectively. The total intrinsic value of options exercised during the six months of 2006 was $88 million.
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. Share-Based Compensation, continued
Long-Term Incentive Programs
Grants under two new Long-term Incentive Plans were made in 2006. One of the plans provides a resulttwo-year cycle ending in fiscal year 2007 and the other plan provides a three-year cycle ending in fiscal year 2008. These awards were intended to enhance the linkage of prior divestituresexecutive compensation with increased efficiency and discontinuances. A wholly-owned subsidiarystrategic objectives and to emphasize performance factors. For these plans, the key financial target is Operating Ratio, which is defined as annual surface transportation operating expenses divided by surface transportation revenue of CSX’s rail and intermodal businesses and is calculated excluding non-recurring items. All units awarded are payable in CSX common stock. The payout range will be between 0% and 200%, with a 100% award being equivalent to one share of CSX retainsstock for each unit granted. Units in both plans have a weighted average grant date fair value of $73.68. The company recorded $7 million for the rightssecond quarter and six months of 2006, of compensation expense for these plans. As of June 30, 2006, there was $69 million of total unrecognized compensation cost related to thosethese plans that is expected to be recognized over a weighted-average period of approximately 1.8 years. The activity related to each of these plans is summarized as follows:
| 2006 - 2007 Plan Units Outstanding (000s) | 2006 - 2008 Plan Units Outstanding (000s) | |||||
Unvested at December 31, 2005 | - | - | ||||
Granted | 690 | 345 | ||||
Forfeited | (2 | ) | (1 | ) | ||
Unvested at June 30, 2006 | 688 | 344 | ||||
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4. Hurricane Katrina
In August 2005, Hurricane Katrina caused extensive damage to company assets on the Gulf Coast. The most significant damage was concentrated on CSXT’s route between New Orleans, LA and indemnifies DPI, SLSIPascagoula, MS. The company has insurance coverage of $535 million, after a $25 million deductible (per occurrence), for fixed asset replacement and business interruption (which includes incremental expenses and lost profits). Management’s current loss estimate is approximately $450 million.
The company’s insurance policies do not prioritize coverage based on types of losses. As claims are submitted to the insurance companies, they are reviewed and preliminary payments made until all losses are incurred and documented. However, no claim payments are guaranteed until cash is received. A final payment will be made once the company and its insurers agree on the total measurement value of the claim. To date, the company has collected insurance recoveries of $278 million.
At December 30, 2005, an insurance receivable, net of cash insurance proceeds amounted to $43 million and was included in accounts receivable – net. The receivable balance represented only a portion of the current loss estimate. In the second quarter of 2006, CSX recognized a gain of $126 million before tax, or $78 million after tax, on insurance recoveries from claims related entities against those liabilities pursuant to a separate agreement. CSX guarantees the obligationsHurricane Katrina. The gain represents insurance recoveries related to property damage and lost profits. Additional gains are expected in future periods as more cash is collected.
In accordance with SFAS 95,Statement of its subsidiary under this separate agreement.
Additional information about the saleeffects of Hurricane Katrina is included in CSX’s Annual Report on Form 10-K for the year ended December 30, 2005.
CSX has a $1.2 billion five-year unsecured revolving credit facility expiring in May 2009 and a $400 million 364-day unsecured revolving credit facility expiring in May 2006. The facilities were entered into in May 2004 and May 2005, respectively, on terms substantially similar to the facilities they replaced. Generally, these facilities may be used for general corporate purposes, to support CSX’s commercial paper and for working capital. Neither of the credit facilities was drawn on as of March 31, 2006. Commitment fees and interest rates payable under the facilities are similar to fees and rates available to comparably rated investment-grade borrowers. These credit facilities allow for borrowings at floating (LIBOR-based) interest rates, plus a spread, depending upon CSX’s senior unsecured debt ratings. As of March 31, 2006, CSX’s long-term unsecured debt obligations were rated BBB and Baa2 by Standard and Poor’s and Moody’s Investor Service, respectively. Commitment fees similarly depend on such ratings and are 15 and 11 basis points per annum, respectively, under the $1.2 billion and $400 million revolving credit facilities. At March 31, 2006, CSX was in compliance with all covenant requirements under the facilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. Share-Based CompensationCasualty, Environmental and Other Reserves
Casualty, environmental and other reserves, including separation liabilities, are provided for in the Consolidated Balance Sheets as follows:
| (Dollars in Millions) | June 30, 2006 | December 30, 2005 | ||||||||||||||
| Current | Long-term | Total | Current | Long-term | Total | |||||||||||
Casualty: | ||||||||||||||||
Personal Injury | $ 160 | $ 272 | $ 432 | $ 172 | $ 249 | $ 421 | ||||||||||
Occupational | 56 | 167 | 223 | 55 | 199 | 254 | ||||||||||
Total Casualty | 216 | 439 | 655 | 227 | 448 | 675 | ||||||||||
Separation | 20 | 110 | 130 | 20 | 101 | 121 | ||||||||||
Environmental | 30 | 45 | 75 | 20 | 51 | 71 | ||||||||||
Other | 40 | 55 | 95 | 44 | 53 | 97 | ||||||||||
Total | $ 306 | $ 649 | $ 955 | $ 311 | $ 653 | $ 964 | ||||||||||
Details on each type of reserve are described below. These reserves are subjective in nature and have been identified as one of the company’s critical accounting estimates. Actual claims received and settlements could differ. The final outcome of these matters cannot be predicted with certainty. Considering, among other items, the legal defenses available and the liabilities that have been recorded, it is the opinion of CSX’s management that none of these items, when finally resolved, will have a material effect on the company’s results of operations, financial position or liquidity. However, should a number of these items occur in the same period, they could have a material effect on the results of operations, financial condition or liquidity in a particular quarter or fiscal year.
Casualty
Casualty reserves represent accruals for personal injury and occupational injury claims, which are described in more detail below. Currently, no individual claim is expected to December 31, 2005, CSX had adoptedexceed the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) 148,company’s self-insured retention amount. If an individual claim did exceed that amount, insurance is available as more specifically detailed in Note 6, Commitments and Contingencies. Personal injury and occupational claims are presented on a gross basis in accordance with SFAS 5,Accounting for Stock-Based Compensation — Transition and DisclosureContingencies(“SFAS 148”5”), on a prospective basis and accordingly recognized expense for stock options granted after December 2002. CSX has not granted stock options after 2003.
9.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. Share-Based Compensation,Casualty, Environmental and Other Reserves, continued
Personal Injury
Personal injury reserves represent liabilities for employee work-related and third-party injuries. Work-related injuries for CSXT employees are subject to the Federal Employers’ Liability Act. CSXT retains an independent actuarial firm to assist management in assessing the value of these personal injury claims and cases. An analysis is performed by the first day of fiscal year 2006),independent actuarial firm semi-annually and is reviewed by management. While the Company adoptedmethodology used by the fair value recognition provisions of SFAS 123(R),Share-Based Payment(“SFAS 123(R)”), using the modified-prospective-transition method. Under that transition method, compensation costs recognizedactuary includes a development factor to reflect growth in the first quartervalue of 2006 include compensation costs for all share-based payments granted prior to, but not yet vested, as of December 31, 2005. The amount of compensation costs recognizedthese personal injury claims, it is based upon the grant date fair value estimated under the Black-Scholes-Merton formula in accordance with the original provisionslargely on CSXT’s historical claims experience.
Occupational
Occupational claims include allegations of SFAS 123,Accounting for Stock-Based Compensation (“SFAS 123”). This method resultsexposure to certain materials in the recognition of additional compensation costs from the unvested portion of options granted prior to 2003. Results for prior periods have not been restated,work place, such as it is not required,asbestos, solvents and the adoption of SFAS 123(R) did not result in a material impact to the Company’s Consolidated Income Statementdiesel fuel, and alleged chronic physical injuries, such as repetitive stress injury, carpal tunnel syndrome or Earnings Per Share. CSX will recognize approximately $3 million in additional compensation cost related to nonvested awards as a result of adopting SFAS 123(R), the majority of which will be recognized in fiscal year 2006.
Separation
Separation liabilities provide for under the estimated grant date fair value method for both SFAS 123(R)costs of implementing workforce reductions, improvements in productivity and SFAS 123; therefore, compensation costs related to these types of awardsother cost reductions at the company’s major transportation units since 1991. These liabilities are consistently reported for all periods presented. Upon adoption of SFAS 123(R), CSX no longer allows automatic vesting when an employee becomes retirement eligible.
| First Quarters | ||||||||
| (Dollars in Millions) | 2006 | 2005 | ||||||
| Share-Based Compensation Expense | $ | 3 | $ | 7 | ||||
10next 15 to 20 years from general corporate funds.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. Share-BasedCasualty, Environmental and Other Reserves, continued
Environmental
The company is a party to various proceedings, including administrative and judicial proceedings, involving private parties and regulatory agencies related to environmental issues. The company has been identified as a potentially responsible party at approximately 267 environmentally impaired sites, many of which are, or may be, subject to remedial action under the Federal Comprehensive Environmental Response, Compensation continued
In accordance with Statement of
Position 96-1Environmental Remediation Liabilities,at least once a quarter the company reviews its role and plans for remediation with respect to each site identified. Based on this review, the company records amounts to cover anticipated contingent future environmental remediation costs with respect to each site, to the extent such costs are estimable and probable. The recorded liabilities are undiscounted and include amounts representing the company’s estimate of unasserted claims, which the company believes to be immaterial.
The company does not currently possess sufficient information to reasonably estimate the amount of additional liabilities, if any, on some sites until completion of future environmental studies. In addition, latent conditions at any given location could result in exposure, the amount and materiality of which cannot presently be reliably estimated. Based upon information currently available, the company believes its environmental reserves are adequate to accomplish the remedial actions necessary to comply with present laws and regulations.
Other
Other reserves include liabilities for various claims, such as longshoremen disability claims, freight claims, and claims for property, automobile and general liability. As liabilities become known, the company accrues the estimable and probable amount in accordance with SFAS 123(R). This table only shows last year’s first quarter pro forma amounts since in the first quarter of 2006 the Company adopted the fair value recognition provisions of SFAS 123(R) and therefore, compensation expenses are recognized in the Consolidated Income Statement for all share-based payments granted prior to, but not yet vested as of December 31, 2005. Consequently, the table below is no longer required to show pro forma amounts for 2006 and forward.
| First Quarter | ||||
| (Dollars in Millions, Except Per Share Amounts) | 2005 | |||
| Net Earnings — As Reported | $ | 579 | ||
| Add: Stock-Based Employee Compensation Expense Included in Reported Net Income — Net of Tax | 4 | |||
| Deduct: Total Stock-Based Employee Compensation Expense Determined under the Fair Value Based Method for All Awards — Net of Tax | (6 | ) | ||
| Pro Forma Net Earnings | $ | 577 | ||
| Interest Expense on Convertible Debt — Net of Tax | 1 | |||
| Pro Forma Net Earnings, If-Converted | $ | 578 | ||
| Earnings Per Share: | ||||
| Basic — As Reported | $ | 2.69 | ||
| Basic — Pro Forma | $ | 2.68 | ||
| Diluted — As Reported | $ | 2.56 | ||
| Diluted — Pro Forma | $ | 2.55 | ||
115.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
| March 31, | December 30, | |||||||
| (Dollars in Millions) | 2006 | 2005 | ||||||
Balance Sheet Information: | ||||||||
| CSX Payable to Conrail | $ | 32 | $ | 40 | ||||
| Promissory Notes Payable to Conrail Subsidiary | ||||||||
| 4.40% CSX Promissory Note due October 2035 | 73 | 73 | ||||||
| 4.52% CSXT Promissory Note due March 2035 | 23 | 23 | ||||||
| First Quarters | ||||||||
| (Dollars in Millions) | 2006 | 2005 | ||||||
Income Statement Information: | ||||||||
| Interest Expense Related to Conrail Advances | $ | 1 | $ | — | ||||
12
NOTE 7. Accumulated Other Comprehensive Loss
Purchase Commitments
CSXT has a commitment under a long-term maintenance program that under generally accepted accounting principles are included in comprehensive income, whichcurrently covers 39% of CSXT’s fleet of locomotives. The agreement is similar to, but excluded from net income. Under existing accounting standards, other comprehensive income includes foreign currency items, minimum pension liability adjustments, unrealized gains and losses on certain investments in debt and equity securities and accountingbased upon the maintenance cycle for derivative financial instruments designated as cash flow hedges. Additional classifications, or additional items within current classifications, may result from future accounting standards.
| Net | ||||||||||||
| After-Tax | ||||||||||||
| (Dollars in Millions) | December 30, 2005 | (Loss) | March 31, 2006 | |||||||||
| Minimum Pension Liability | $ | (307 | ) | $ | — | $ | (307 | ) | ||||
| Fair Value of Fuel Derivatives | 30 | (19 | ) | 11 | ||||||||
| Other | — | (1 | ) | (1 | ) | |||||||
| Total | $ | (277 | ) | $ | (20 | ) | $ | (297 | ) | |||
The following table summarizes CSXT’s payments under the long-term maintenance program:
| Second Quarters | Six Months | |||||||||
| (Dollars in Millions) | 2006 | 2005 | 2006 | 2005 | ||||||
Amounts Paid | $ 48 | $ 43 | $ 89 | $ 84 | ||||||
Insurance
The company maintains numerous insurance programs, with substantial limits, most notably for: (1) third-party casualty liability and (2) for company property damage which includes business interruption. A specific amount of risk ($25 million per occurrence) is retained by the company on each of the casualty and non-catastrophic property programs. The company retains $50 million of risk per occurrence for its catastrophic property coverage, an increase of $25 million from the prior year. For information on insurance coverage for the first quartereffects of 2006 resulted from a decrease in the quantity of fuel derivative contracts outstanding. CSX has suspended entering into new swaps in its fuel hedge program since the third quarter of 2004. (SeeHurricane Katrina, see Note 9, Derivative Financial Instruments.)
134, Hurricane Katrina.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8. Other Income (Expense) – Net6. Commitments and Contingencies, continued
Guarantees
CSX is contingently liable, individually and jointly with others, as guarantor of approximately $100 million in obligations principally relating to vessels and facilities used by the company in its former business operations. Utilizing the company’s guarantee for these obligations allows the obligor to take advantage of lower interest rates and obtain other favorable terms. Guarantees are contingent commitments issued by the company that could require CSX or one of its affiliates to make payment to, or to perform certain actions for, the beneficiary of the following:
| First Quarters | ||||||||
| (Dollars in Millions) | 2006 | 2005 | ||||||
| Interest Income | $ | 9 | $ | 7 | ||||
| Loss from Real Estate and Resort Operations | (9 | ) | (8 | ) | ||||
| Minority Interest | (5 | ) | (3 | ) | ||||
| Miscellaneous | 2 | 2 | ||||||
| Other Income (Expense) — Net | $ | (3 | ) | $ | (2 | ) | ||
| 1. | Guarantee of approximately $76 million in obligations expiring in 2012 of a former subsidiary, CSX Energy, in connection with a sale-leaseback transaction. CSX is, in turn, indemnified by several subsequent owners of the subsidiary against payments made with respect to these leases. CSX does not expect that it will be required to make any payments under this guarantee for which it will not be reimbursed. |
| 2. | Guarantee of approximately $13 million for a vessel lease commitment assumed by A.P. Moller-Maersk (“Maersk”) for which CSX is contingently liable until 2011. CSX believes Maersk will fulfill its contractual commitment and that CSX will have no further liability for this obligation. |
| 3. | Guarantee of approximately $8 million relating to leases assumed as part of the conveyance of CSX’s interest in a former subsidiary, CSX Lines. CSX believes the former subsidiary will fulfill its contractual commitments with respect to these leases, which expire in 2007, and CSX will have no further liabilities for those obligations. |
As permitted under scope exceptions of FASB Interpretation 45,Guarantor’s Accounting and Resort OperationsDisclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, the company did not recognize any liability in its financial statements, as of June 30, 2006, in connection with any guarantee arrangements. The maximum amount of future payments CSX could be required to make under these guarantees is the amount of the guarantees themselves. See also Note 14, Discontinued Operations.
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6. Commitments and Contingencies, continued
Certain Tax Matters
The company operates in multiple taxing jurisdictions and files a consolidated federal income tax return that includes its principal subsidiaries. Examinations of the federal income tax returns of CSX have been completed through 1993. Federal income tax returns for 1994 through 2003 are currently under examination and some of these years may be nearing resolution. In the second quarter of 2006, CSX recognized an income tax benefit of $41 million principally related to the resolution of certain tax matters. As issues are resolved in future periods, additional adjustments may occur that could be material to results of operations, financial condition or liquidity in a particular fiscal quarter or fiscal year. Management believes adequate provision has been made for any adjustments that might be assessed. In the second quarter of 2005, Ohio enacted legislation to gradually eliminate its corporate franchise tax. This legislative change resulted in an income tax benefit of $71 million associated with eliminating deferred income tax liabilities. FASB Interpretation 48Accounting for Uncertainty in Income Taxes (“FIN 48”) was issued in July 2006 and is required to be adopted by the company at the beginning of fiscal year 2007. The company is currently evaluating the impact of FIN 48 on its consolidated financial statements, but is not yet in a position to determine the impact of the standard.
Other Legal Proceedings
The company is involved in various legal proceedings and is subject to claims that arise in the ordinary course of its business. Management assesses the probability of loss for all legal proceedings and claims and has recognized liabilities for such contingencies, as appropriate. While the final outcome of these matters cannot be predicted with certainty considering, among other things, the available legal defenses and liabilities that have been recorded along with applicable insurance, it is the opinion of CSX’s management that none of these items will have a material adverse effect on the results of operations, from the CSX-owned resort called the Greenbrier, located in White Sulphur Springs, West Virginia, as well as the resultsfinancial position or liquidity of the Company’s real estate sales, leasing and development activities.
| Notional | Fixed | |||||||
| Amount | Interest | |||||||
| Maturity Date | (Millions) | Rate | ||||||
| May 1, 2007 | $ | 450 | 7.45 | % | ||||
| May 1, 2032 | 150 | 8.30 | % | |||||
| Total/Average | $ | 600 | 7.66 | % | ||||
14company.
NOTE 9.7. Debt and Credit Agreements
On May 4, 2006, CSX entered into a $1.25 billion five-year unsecured revolving credit facility with a group of lending banks, including JPMorgan Chase Bank, N.A., which is acting as the administrative agent. Except for the two features described below, the facility’s terms are substantially similar to those of the facility it replaced, a $1.2 billion five-year unsecured revolving credit facility, which would have expired on May 12, 2009.
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7. Debt and Credit Agreements, continued
CSX’s new facility expires on May 4, 2011, but CSX may, with the consent of the lenders, on each of May 4, 2007, and May 4, 2008, extend the maturity date by an additional year. Additionally, this new facility includes a feature that permits CSX, with the approval of the lending banks, to increase its total borrowing capacity by $500 million, from $1.25 billion to up to $1.75 billion. CSX’s $400 million 364-day revolving credit facility expired on May 4, 2006, and was not replaced; no loans or other obligations were outstanding under this facility at the time it expired.
The new five-year facility may be used for working capital and other general corporate purposes, including support of CSX’s commercial paper. As of June 30, 2006, the facility was not drawn on, and CSX was in compliance with all covenant requirements under the facility.
Commitment fees and interest rates payable under the facility are similar to fees and rates available to comparably rated investment-grade borrowers. The facility allows for borrowings at floating (LIBOR-based) interest rates, plus a spread, depending upon CSX’s senior unsecured debt ratings. As of June 30, 2006, facility fees were 10 basis points per year.
CSX’s long-term unsecured debt obligations were rated BBB and Baa2 by Standard and Poor’s and Moody’s Investor Service, respectively. If CSX’s long-term unsecured bond ratings were reduced to BBB- and Baa3, its undrawn borrowing costs under the $1.25 billion revolving credit facility would not materially increase. In May 2006, Moody’s Investor Service revised the outlook on CSX senior unsecured debt from “Negative” to “Stable.”
CSX’s short-term commercial paper program was rated A-2 and P-2 by Standard and Poor’s and Moody’s Investor Service, respectively. If CSX’s short-term commercial paper ratings were reduced to A-3 and P-3, it would increase CSX’s borrowing costs in the commercial paper market and reduce its access to this source of funds because of the more limited demand for lower rated commercial paper. CSX had no commercial paper outstanding at June 30, 2006, or December 30, 2005.
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8. Derivative Financial Instruments continued
CSX uses derivative financial instruments to manage its overall exposure to fluctuations in interest rates and fuel costs.
Interest Rate Swaps
CSX has entered into various interest rate swap agreements on the following fixed-rate notes:
| Maturity Date | Notional Amount (Millions) | Fixed Interest Rate | ||||
May 1, 2007 | $ | 450 | 7.45 | % | ||
May 1, 2032 | 150 | 8.30 | % | |||
Total/Average | $ | 600 | 7.66 | % | ||
Under these agreements, CSX will pay variable interest (based on LIBOR) in exchange for a fixed rate, effectively transforming the notes to floating-rate obligations. The interest rate swap agreements are designated and qualify as fair value hedges. The gain or loss on the derivative instrument, as well as the offsetting gain or loss on the fixed-rate note attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. Hedge effectiveness is measured at least quarterly based on the relative change in fair value of the derivative contract in comparison with changes over time in the fair value of the fixed-rate notes. Any change in fair value resulting from ineffectiveness, as defined by SFAS 133,Accounting For Derivative Instruments and Hedging Activities(“SFAS 133”), is recognized immediately in earnings.
CSX’s interest rate swaps qualify as perfectly effective fair value hedges, as defined by SFAS 133. The gain or loss on the interest rate swap exactly offsets the loss or gainchange on the underlying fixed-rate notes. As such, there was no ineffective portion to the hedge recognized in earnings during the current or prior year periods. Current Maturities of Long-term debt hasDebt and Long-term Debt have been decreased by $3$6 million and $1 million, respectively, for the fair market value of the interest rate swap agreements based upon quoted market prices at March 31,June 30, 2006. Long-term debt has been increased by $1 million for the fair market value of the interest rate swap agreements based upon quoted market prices at December 30, 2005. Fair value adjustments are non-cash transactions and, accordingly, have no cash impact on the Consolidated Cash Flow Statements.
The differential to be paid or received under these agreements is accrued based upon the terms of the agreements, and is recognized in interest expense over the term of the related debt. The related amounts payable to, or receivable from, counterparties are included in Other Current Assets or Liabilities.
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
| March 31, | ||||
| 2006 | ||||
| Remaining Gallons Hedged (Millions) | 18 | |||
| Average Price Per Gallon | $ | 0.85 | ||
| 2006 | |||||||||
| Q2 | Q3 | ||||||||
| Estimated % of Future Fuel Purchases Hedged | 12 | % | 1 | % | |||||
16
| (Dollars in Millions) | March 31, 2006 | December 30, 2005 | ||||||||||||||||||||||
| Current | Long-term | Total | Current | Long-term | Total | |||||||||||||||||||
| Casualty: | ||||||||||||||||||||||||
| Personal Injury | $ | 161 | $ | 274 | $ | 435 | $ | 172 | $ | 249 | $ | 421 | ||||||||||||
| Occupational | 56 | 186 | 242 | 55 | 199 | 254 | ||||||||||||||||||
| Total Casualty | 217 | 460 | 677 | 227 | 448 | 675 | ||||||||||||||||||
| Separation | 21 | 120 | 141 | 20 | 101 | 121 | ||||||||||||||||||
| Environmental | 30 | 43 | 73 | 20 | 51 | 71 | ||||||||||||||||||
| Other | 41 | 55 | 96 | 44 | 53 | 97 | ||||||||||||||||||
Total | $ | 309 | $ | 678 | $ | 987 | $ | 311 | $ | 653 | $ | 964 | ||||||||||||
17
NOTE 10. Casualty, Environmental8. Derivative Financial Instruments, continued
Cash flows related to interest rate swap agreements are classified as Operating Activities in the Consolidated Cash Flow Statements. Interest rate swap contracts had no material impact on interest expense for the second quarter or six months of 2006. For the second quarter and Other Reserves, continued
The counterparties to the Federal Employers’ Liability Act (“FELA”). CSXT retains an independent actuarial firminterest rate swap agreements expose CSX to assist managementcredit loss in assessing the valueevent of these personal injury claims and cases. An analysis is performednon-performance. CSX does not anticipate non-performance by the independent actuarial firm semi-annuallycounterparties.
Fuel Hedging
In 2003, CSX began a program to hedge a portion of CSXT’s future locomotive fuel purchases. This program was established to manage exposure to fuel price fluctuations. To minimize this risk, CSX entered into a series of swaps in order to fix the price of a portion of CSXT’s estimated future fuel purchases. The program limits fuel hedges to a 24-month duration and is reviewed by management. The methodology used bya maximum of 80% of CSXT’s average monthly fuel purchased for any month within the actuary includes a development factor to reflect growth24-month period, and places the hedges among selected counterparties.
CSX suspended entering into new swaps in its fuel hedge program in the valuethird quarter of these personal injury claims. This methodology is based largely2004. Current swap maturities of 900,000 gallons, at an average price of $0.91 will expire on CSXT’s historical claimsJuly 31, 2006.
Fuel hedging activity reduced fuel expense for the second quarter and settlement activity. Actual results may vary from estimates duesix months of 2006 by $19 million and $54 million, respectively. Fuel hedging activity reduced fuel expense for the second quarter and six months of 2005 by $63 million and $114 million, respectively. Ineffectiveness, or the extent to which changes in the type and severityfair values of the injury, costs of medical treatments and uncertainties in litigation.
18purchases, was immaterial.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10. Casualty, Environmental8. Derivative Financial Instruments, continued
These instruments qualify, and Other Reserves, continued
19
| Amount | ||||
| (Dollars in Millions) | Collected | |||
| Fourth Quarter 2005 | $ | 70 | ||
| First Quarter 2006 | 50 | |||
| Second Quarter 2006 - to date | 97 | |||
| Total Collected to Date | $ | 217 | ||
The counterparties to the fuel hedge agreements expose CSX to credit loss in the event of non-performance. CSX does not anticipate non-performance by the counterparties.
NOTE 9. Accumulated Other Comprehensive Loss
Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in Accounts Receivable — Netcomprehensive income, a component of Shareholders’ Equity within the Consolidated Balance Sheets, rather than net income. Under existing accounting standards, other comprehensive income (loss) for CSX includes minimum pension liability adjustments and accounting for derivative financial instruments designated as cash flow hedges. Additional classifications, or additional items within current classifications, may result from future accounting standards.
The following table provides a reconciliation of net income reported in the Company’s Consolidated Balance Sheets. These receivables were recordedIncome Statements to comprehensive income:
| Second Quarters | ||||||||
| (Dollars in Millions) | 2006 | 2005 | ||||||
Net income | $ | 390 | $ | 165 | ||||
Other Comprehensive Loss: | ||||||||
Fair Value of Fuel Derivatives | (11 | ) | (36 | ) | ||||
Comprehensive Income | $ | 379 | $ | 129 | ||||
| Six Months | ||||||||
| (Dollars in Millions) | 2006 | 2005 | ||||||
Net income | $ | 635 | $ | 744 | ||||
Other Comprehensive Income/(Loss): | ||||||||
Fair Value of Fuel Derivatives | (30 | ) | 31 | |||||
Other | (1 | ) | (1 | ) | ||||
Comprehensive Income | $ | 604 | $ | 774 | ||||
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9. Accumulated Other Comprehensive Loss, continued
Other comprehensive income (loss) has declined over time as a reductionresult of Labor and Fringe and Materials, Supplies and Other expensesa decrease in the Company’s Consolidatedquantity of fuel derivative contracts outstanding. CSX suspended entering into new swaps in its fuel hedge program in the third quarter of 2004. (See Note 8, Derivative Financial Instruments.)
NOTE 10. Other Income Statement.
Other Income (Expense) – Net consists of the receivable,following:
| Second Quarters | Six Months | |||||||||||||||||
| (Dollars in Millions) | 2006 | 2005 | 2006 | 2005 | ||||||||||||||
Interest Income | $ | 10 | $ | 15 | $ | 19 | $ | 22 | ||||||||||
Income (Loss) from Real Estate and Resort Operations | 2 | 24 | (7 | ) | 16 | |||||||||||||
Minority Interest | (6 | ) | (7 | ) | (11 | ) | (10 | ) | ||||||||||
Miscellaneous | 5 | (2 | ) | 7 | - | |||||||||||||
Other Income (Expense)—Net | $ | 11 | $ | 30 | $ | 8 | $ | 28 | ||||||||||
Income from Real Estate and Resort Operations includes the Company will record gainsresults of operations from CSX Hotels, Inc. a resort doing business as The Greenbrier, located in White Sulphur Springs, West Virginia, as well as the income statement. These gains will be recorded separately as a reduction of operating expenses. The Company currently estimates cash proceeds in excessresults of the receivable beginning incompany’s real estate sales, leasing acquisition, management and development activities. Other income (expense) decreased for the second quarter of 2006.
20prior year.
NOTE 12. Commitments11. Business Segments
The company operates in two major business segments, which comprise Surface Transportation: rail and Contingencies
Consolidated operating income includes the program, CSXT paid $41 million for both the first quarters of 2006 and 2005.
21items.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11. Business Segments, continued
Business segment information for the second quarters and six months of 2006 and 2005 is as follows:
| Surface Transportation | ||||||||||
| (Dollars in Millions) | Rail | Intermodal | Total | Other | Total | |||||
Second Quarter - 2006 | ||||||||||
Revenues from External Customers | $ 2,065 | $ 356 | $ 2,421 | $ - | $ 2,421 | |||||
Segment Operating Income | 582 | 63 | 645 | 1 | 646 | |||||
Second Quarter - 2005 | ||||||||||
Revenues from External Customers | $ 1,836 | $ 330 | $ 2,166 | $ - | $ 2,166 | |||||
Segment Operating Income | 367 | 55 | 422 | 9 | 431 | |||||
Six Months - 2006 | ||||||||||
Revenues from External Customers | $ 4,062 | $ 690 | $ 4,752 | $ - | $ 4,752 | |||||
Segment Operating Income | 1,007 | 125 | 1,132 | 10 | 1,142 | |||||
Six Months - 2005 | ||||||||||
Revenues from External Customers | $ 3,615 | $ 659 | $ 4,274 | $ - | $ 4,274 | |||||
Segment Operating Income | 666 | 107 | 773 | 12 | 785 | |||||
NOTE 12. CommitmentsEmployee Benefit Plans
The company sponsors defined benefit pension plans principally for salaried, management personnel. The plans provide eligible employees with retirement benefits based predominantly upon years of service and Contingencies, continued
In addition to the Company has not recognized any liabilities in its financial statements in connectiondefined benefit pension plans, CSX sponsors one post-retirement medical plan and one life insurance plan that provide benefits to full-time, salaried, management employees hired prior to January 1, 2003, upon their retirement, if certain eligibility requirements are met. The post-retirement medical plan is contributory (partially funded by retirees), with any guarantee arrangements as FASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Othersdoes not apply to these obligations.retiree contributions adjusted annually. The maximum amount of future payments CSX could be required to make under these guaranteeslife insurance plan is the amount of the guarantees themselves.
22non-contributory.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12. Employee Benefit Plans, continued
The following table presents components of net periodic benefit cost:
| Pension Benefits | ||||||||||||||
| Second Quarters | Six Months | |||||||||||||
| (Dollars in Millions) | 2006 | 2005 | 2006 | 2005 | ||||||||||
Service Cost | $ 9 | $ 8 | $ 18 | $ 16 | ||||||||||
Interest Cost | 26 | 27 | 53 | 54 | ||||||||||
Expected Return on Plan Assets | (29 | ) | (30 | ) | (59 | ) | (60 | ) | ||||||
Amortization of Prior Service Cost | 1 | 1 | 2 | 2 | ||||||||||
Amortization of Net Loss | 9 | 6 | 17 | 12 | ||||||||||
Net Periodic Benefit Cost | $ 16 | $ 12 | $ 31 | $ 24 | ||||||||||
| Other Benefits | ||||||||||||||
| Second Quarters | Six Months | |||||||||||||
| (Dollars in Millions) | 2006 | 2005 | 2006 | 2005 | ||||||||||
Service Cost | $ 2 | $ 2 | $ 3 | $ 4 | ||||||||||
Interest Cost | 5 | 6 | 11 | 12 | ||||||||||
Expected Return on Plan Assets | - | - | - | - | ||||||||||
Amortization of Prior Service Cost | (1 | ) | (1 | ) | (3 | ) | (2 | ) | ||||||
Amortization of Net Loss | 2 | 3 | 4 | 6 | ||||||||||
Net Periodic Benefit Cost | $ 8 | $ 10 | $ 15 | $ 20 | ||||||||||
Medicare Prescription Drug, Improvement and Modernization Act of 2003
The company is required to estimate and record the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“the Act”). Based upon a review by its health and welfare actuary, CSX determined that the plan’s prescription drug benefit qualifies as actuarially equivalent to the benefit that would be paid. CSX has applied for the 28% federal reimbursement of total prescription drug claims from $250 to $5,000 paid after December 31, 2005, which is tax-exempt. Combining the financial implications of both cash receipts and lower tax-deductible business expenses resulting from the subsidy, the company expects after-tax cash savings of approximately $5 million for fiscal year 2006 to begin in the third quarter. Additionally, projected post-retirement benefit expenses for fiscal year 2006 were reduced by approximately $7 million due to the Act.
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13. Related Party Transactions
CSX and Norfolk Southern Corporation (“NS”) jointly own Conrail Inc. (“Conrail”) through a limited liability company. CSX has a 42% economic interest and 50% voting interest in the jointly-owned entity, and NS has the remainder of the economic and voting interests. CSX applies the equity method of accounting to its investment in Conrail.
As required by SFAS 57,Related Party Disclosures, the company has identified below amounts owed to Conrail or its affiliates representing expenses incurred under the operating, equipment and shared area agreements with Conrail. In exchange for the Conrail advance, the company has executed two promissory notes with a subsidiary of Conrail which are included in Long-term Debt on the Consolidated Balance Sheets.
| (Dollars in Millions) | June 30, 2006 | December 30, 2005 | ||
Balance Sheet Information: | ||||
CSX Payable to Conrail | $ 31 | $ 40 | ||
Promissory Notes Payable to Conrail Subsidiary | ||||
4.40% CSX Promissory Note due October 2035 | 73 | 73 | ||
4.52% CSXT Promissory Note due March 2035 | 23 | 23 | ||
| Second Quarters | Six Months | |||||||
| (Dollars in Millions) | 2006 | 2005 | 2006 | 2005 | ||||
Income Statement Information: | ||||||||
Interest Expense Related to Conrail Advances | $ 1 | $ - | $ 2 | $ - | ||||
Additional information about the Investment in Conrail is included in CSX’s Annual Report on Form 10-K for the year ended December 30, 2005.
NOTE 13. Business Segments
In February 2005, CSX sold its International Terminals business, which included the capital stock of SL Service, Inc. (“SLSI”) to Dubai Ports International FZE (“DPI”) for gross cash consideration of $1.142 billion. Of the gross proceeds, approximately $110 million was paid for the purchase of a minority interest in an International Terminals’ subsidiary, which the company acquired during the first quarter of 2005 and divested as part of the sale to DPI. Other related cash transaction costs amounted to approximately $34 million, including resolution of working capital and long-term debt adjustments.
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14. Discontinued Operations, continued
CSX recognized income of $683 million pretax, $428 million after tax, for the first quarter of 2005, as a result of the sale. Also included in Discontinued Operations is the after-tax loss on operations of the International Terminals business of $3 million for the first quarter of 2005. Consequently, amounts related to this business are reported as Discontinued Operations on the Consolidated Income Statement for fiscal year 2005.
SLSI also holds certain residual assets and liabilities as a result of prior divestitures and discontinuances. A wholly-owned subsidiary of CSX retains the rights to those assets and indemnifies DPI, SLSI and related entities against those liabilities pursuant to a separate agreement. CSX guarantees the obligations of its subsidiary under this separate agreement.
Additional information about the sale is included in CSX’s Annual Report on Form 10-K for the year ended December 30, 2005.
Note 15. Subsequent Event
On July 18, 2006, the Company announced that its Board of Directors approved a two-for-one split of the Company’s common stock and a $0.10 quarterly post-split dividend, representing an increase of 54%.
All stockholders of record on August 3, 2006, will receive one additional share of CSX common stock for each share held on that date. The Company operatesadditional share of common stock will be distributed to stockholders of record on August 15, 2006.
The Board of Directors also granted new authority of up to $500 million so that CSX may purchase shares of its common stock. CSX intends to complete the purchase of shares under this new authority from time to time over the next 12 months beginning in two business segments: railthe third quarter of 2006.
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 15. Subsequent Event, continued
As of the record date, the company will be required to retroactively apply the effect of the stock split, as follows:
| Second Quarters | Six Months | ||||||||||||
| As Reported | 2006 | 2005 | 2006 | 2005 | |||||||||
Earnings Per Common Share | |||||||||||||
Earnings Per Share (Note 2): | |||||||||||||
From Continuing Operations | $ 1.76 | $ 0.76 | $ 2.88 | $ 1.48 | |||||||||
Discontinued Operations | - | - | - | 1.97 | |||||||||
Net Earnings | $ 1.76 | $ 0.76 | $ 2.88 | $ 3.45 | |||||||||
Earnings Per Share, Assuming Dilution (Note 2): | |||||||||||||
From Continuing Operations | $ 1.66 | $ 0.73 | $ 2.73 | $ 1.41 | |||||||||
Discontinued Operations | - | - | - | 1.88 | |||||||||
Net Earnings | $ 1.66 | $ 0.73 | $ 2.73 | $ 3.29 | |||||||||
Average Common Shares Outstanding (Thousands) | 221,908 | 216,418 | 220,794 | 215,887 | |||||||||
Average Common Shares Outstanding, Assuming Dilution (Thousands) | 235,103 | 227,453 | 233,642 | 226,850 | |||||||||
| Second Quarters | Six Months | ||||||||||||
| Pro forma | 2006 | 2005 | 2006 | 2005 | |||||||||
Earnings Per Common Share | |||||||||||||
Earnings Per Share: | |||||||||||||
From Continuing Operations | $ 0.88 | $ 0.38 | $ 1.44 | $ 0.74 | |||||||||
Discontinued Operations | - | - | - | 0.98 | |||||||||
Net Earnings | $ 0.88 | $ 0.38 | $ 1.44 | $ 1.72 | |||||||||
Earnings Per Share, Assuming Dilution: | |||||||||||||
From Continuing Operations | $ 0.83 | $ 0.36 | $ 1.36 | $ 0.71 | |||||||||
Discontinued Operations | - | - | - | 0.93 | |||||||||
Net Earnings | $ 0.83 | $ 0.36 | $ 1.36 | $ 1.64 | |||||||||
Average Common Shares Outstanding (Thousands) | 443,815 | 432,836 | 441,588 | 431,775 | |||||||||
Average Common Shares Outstanding, Assuming Dilution (Thousands) | 470,206 | 454,906 | 467,285 | 453,700 | |||||||||
CSX CORPORATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPANY OVERVIEW
CSX Corporation (“CSX” and, intermodal.together with its subsidiaries, the “company”), based in Jacksonville, FL, is one of the nation’s leading transportation companies. Surface Transportation, which includes the Company’scompany’s rail and intermodal businesses, provides rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers. CSX’s principal operating company, CSX Transportation Inc. (“CSXT”), operates the largest railroad in the eastern United States with a 21,000-mile rail network of approximately 21,000 miles, linking markets in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec. CSX Intermodal Inc. (“Intermodal”), one of the nation’s largest coast-to-coast intermodal transportation providers, is a stand-alone, integrated intermodal company linking customers to railroads via trucks and terminals.
CSX’s other holdings include CSX Hotels, Inc., a resort doing business as The Company evaluates performanceGreenbrier, located in White Sulphur Springs, West Virginia, and allocates resources based on several factors, of which the primary financial measure is business segment operating income. The accounting policies of the segments are the same as those described in “Note 1. Nature of Operations and Significant Accounting Policies,” in the CSX 2005 Annual Report on Form 10-K.
SECOND QUARTER 2006 and 2005 is as follows:
| Surface Transportation | ||||||||||||||||||||
| (Dollars in Millions) | Rail | Intermodal | Total | Other | Total | |||||||||||||||
Quarter Ended March 31, 2006 | ||||||||||||||||||||
| Revenues from External Customers | $ | 1,997 | $ | 334 | $ | 2,331 | $ | — | $ | 2,331 | ||||||||||
| Segment Operating Income | 425 | 62 | 487 | 9 | 496 | |||||||||||||||
Quarter Ended April 1, 2005 | ||||||||||||||||||||
| Revenues from External Customers | $ | 1,779 | $ | 329 | $ | 2,108 | $ | — | $ | 2,108 | ||||||||||
| Segment Operating Income | 299 | 52 | 351 | 3 | 354 | |||||||||||||||
Revenue grew 12% to $2.4 billion.
23
Operating income increased to $645 million.
Service and pay credits based upon age, service and compensation.
| Pension Benefits | Other Benefits | |||||||||||||||
| (Dollars in Millions) | First Quarters | First Quarters | ||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| Service Cost | $ | 9 | $ | 8 | $ | 2 | $ | 2 | ||||||||
| Interest Cost | 26 | 27 | 5 | 6 | ||||||||||||
| Expected Return on Plan Assets | (29 | ) | (30 | ) | — | — | ||||||||||
| Amortization of Prior Service Cost | 1 | 1 | (1 | ) | (1 | ) | ||||||||||
| Amortization of Net Loss | 9 | 6 | 2 | 3 | ||||||||||||
| Net Periodic Benefit Cost | $ | 16 | $ | 12 | $ | 8 | $ | 10 | ||||||||
24
For additional information, refer to Rail and Intermodal Results of Operations discussions on pages 3035 and 32,37, respectively.
The company’s continued focus on safety leadership and plan execution helped all operating measures improve compared to the second quarter of 2005. CSX’s key safety measures, personal injury and train accident frequency, improved executionsignificantly by 27% and 9%, respectively. On-time originations and on-time arrivals, which are indicators of the ONE Plan.
25scheduled train performance, increased 60% and 67%, respectively.
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RAIL OPERATING STATISTICS(Estimated)
| First Quarters | ||||||||||||||
| % Increase | ||||||||||||||
| 2006 | 2005 | (Decrease) | ||||||||||||
| Service Measurements | Personal Injury Frequency Index (Per 200,000 Man Hours) | 1.38 | 1.65 | 16 | ||||||||||
| FRA Train Accidents Frequency (Per Million Train Miles) | 3.61 | 5.02 | 28 | |||||||||||
| On-Time Originations | 74.4 | % | 49.9 | % | 49 | |||||||||
| On-Time Arrivals | 61.3 | % | 37.7 | % | 63 | |||||||||
Average System Dwell Time (Hours) (a) | 26.6 | 30.0 | 11 | |||||||||||
| Average Total Cars-On-Line | 224,299 | 234,209 | 4 | |||||||||||
| Average Velocity, All Trains (Miles Per Hour) | 20.0 | 19.5 | 3 | |||||||||||
| Average Recrews (Per Day) | 58 | 65 | 11 | |||||||||||
| Resources | Route Miles | 21,287 | 21,884 | (3 | ) | |||||||||
| Locomotives (Owned and Long-term Leased) | 3,780 | 3,708 | 2 | |||||||||||
| Freight Cars (Owned and Long-term Leased) | 102,794 | 104,735 | (2 | ) | ||||||||||
| Second Quarters | |||||||||||
| 2006 | 2005 | % Improvement (Decline) | |||||||||
Service Measurements | Personal Injury Frequency Index(Per 200,000 Man Hours) | 1.37 | 1.88 | 27 | |||||||
| FRA Train Accidents Frequency(Per Million Train Miles) | 3.29 | 3.62 | 9 | ||||||||
| On-Time Originations | 76.5 | % | 47.7 | % | 60 | ||||||
| On-Time Arrivals | 60.3 | % | 36.2 | % | 67 | ||||||
| Average System Dwell Time(Hours)(a) | 25.5 | 30.4 | 16 | ||||||||
| Average Total Cars-On-Line | 223,349 | 235,819 | 5 | ||||||||
| Average Velocity, All Trains (Miles Per Hour) | 19.5 | 19.1 | 2 | ||||||||
| Average Recrews(Per Day) | 63 | 67 | 6 | ||||||||
Resources | Route Miles | 21,244 | 21,794 | (3 | ) | ||||||
| Locomotives(Owned and Long-term Leased) | 3,850 | 3,694 | 4 | ||||||||
| Freight Cars(Owned and Long-term Leased) | 102,975 | 103,544 | (1 | ) | |||||||
(a) Beginning October 2005, the American Association of American Railroads adopted a new dwell calculation in an effort to standardize reporting across U.S. railroads. Beginning in the second quarter of 20062007 and going forward, CSXCSXT will adopt this new method. If CSXCSXT had used this new method in the firstsecond quarter of 2006, average system dwell time would have been 26.125.1 hours for that period versus 26.625.5 hours as shown above.
2006 Surface Transportation ExpectationsSURFACE TRANSPORTATION EXPECTATIONS
The Company’scompany’s performance infor the remainder of 2006 is expected to support its five-year financial targets of double-digit annual growth in Surface Transportation operating income, consolidated earnings per share and free cash flow. In 2006,flow over the next five years through 2010. CSX expects strong revenue growth, driven by a continuing robust pricing environment and modest volume growth. In addition, lower margin traffic will continue to be re-priced or replaced by longer haul, more profitable business.
Continued improvements in service and safety performance, combined with planned investments in locomotives, employees and capacity, will build on the momentum established in 2005 and continued in the first quarterhalf of 2006. Management believes current resource plans will support anticipated business levels and maintainwhile maintaining network fluidity. Those plans include hiring new train and engine employees, which consist of locomotive engineers and conductors, to offset anticipated attrition. A two-year capacity expansion and infrastructure investment plan is also designed to drive improvedwill improve service reliability and support volume growth as projects are completed. The firstgrowth. Certain expansion projects will behave been completed during the first half of 2006 and the remaining projectsrest are on target for completion during the remainder of 2006 and in 2007.
26
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL RESULTS OF OPERATIONS
Second Quarter Consolidated Results of Operations
The financial statements presented are for the 13-week fiscalsecond quarters ended March 31,of 2006 and April 1, 2005. Except as otherwise specified, references to years indicate the Company’scompany’s fiscal quarter ended as noted previously.
| CONSOLIDATED | ||||||||||||
| First Quarters | Increase/ | |||||||||||
| (Dollars in Millions) | 2006 | 2005 | (Decrease) | |||||||||
Operating Revenue | $ | 2,331 | $ | 2,108 | $ | 223 | ||||||
Operating Expense: | ||||||||||||
| Labor and Fringe | 720 | 696 | 24 | |||||||||
| Materials, Supplies and Other | 453 | 468 | (15 | ) | ||||||||
| Depreciation | 211 | 205 | 6 | |||||||||
| Fuel | 253 | 179 | 74 | |||||||||
| Building and Equipment Rent | 123 | 132 | (9 | ) | ||||||||
| Inland Transportation | 56 | 54 | 2 | |||||||||
| Conrail Rents, Fees & Services | 19 | 20 | (1 | ) | ||||||||
Total Operating Expense | 1,835 | 1,754 | 81 | |||||||||
Operating Income | $ | 496 | $ | 354 | $ | 142 | ||||||
Prior periods have been reclassified to conform to the current presentation. | ||||||||||||
| CONSOLIDATED | ||||||||
| Second Quarters | Increase/ | |||||||
| (Dollars in Millions) | 2006 | 2005 | (Decrease) | |||||
Operating Revenue | $ 2,421 | $ 2,166 | $ 255 | |||||
Operating Expense: | ||||||||
Labor and Fringe | 718 | 707 | 11 | |||||
Materials, Supplies and Other | 465 | 439 | 26 | |||||
Depreciation | 216 | 205 | 11 | |||||
Fuel | 288 | 176 | 112 | |||||
Building and Equipment Rent | 131 | 127 | 4 | |||||
Inland Transportation | 62 | 62 | — | |||||
Conrail Rents, Fees & Services | 21 | 19 | 2 | |||||
Gain on Insurance Recoveries | (126 | ) | — | (126 | ) | |||
Total Operating Expense | 1,775 | 1,735 | 40 | |||||
Operating Income | $ 646 | $ 431 | $ 215 | |||||
Prior periods have been reclassified to conform to the current presentation.
Consolidated Operating Revenue
Revenue increases were driven by the Company’scompany’s continued pricing efforts, the fuel surcharge program and traffic mix.
Consolidated Operating Income
Improvement in Consolidated Operating Incomeconsolidated operating income was driven by increased Operating Revenue,operating revenue and the gain on insurance recoveries, partially offset by increases in Operating Expenses, primarily as a result of higher fuel prices and lower fuel hedge benefit.
27
Interest expense decreased $12 million compared to the prior year comparable period due to lower outstanding debt balances resulting from the repurchase of $1.0 billion of the company’s publicly-traded notes in June 2005.
CSX CORPORATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
InterestIncome Tax Expense
Income tax expense for the second quarter of 2006 increased $175 million compared to the prior year comparable quarter as a resultperiod. The principal elements of the repurchase of $1.0 billion of the Company’s publicly-traded notes in June 2005.
| (a) | income tax effect of increased earnings from operations; |
| (b) | income tax benefit of $41 million principally related to the resolution of certain tax matters during the second quarter of 2006; and |
| (c) | income tax benefit of $71 million from Ohio tax legislation changes enacted during last year’s second quarter. |
Net Earnings
Consolidated Net Earnings were higher by $334net earnings increased $225 million for the firstsecond quarter of 2005, due to a $428 million after-tax2006 primarily driven by higher revenue, gain on insurance recoveries resulting from Hurricane Katrina and prior year costs associated with the Company’s discontinued operations. Discontinued Operations for the first quarter of 2005 also included an after-tax loss on operations of $3 million from the International Terminals business.
28debt repurchase that were not repeated.
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SURFACE TRANSPORTATION DETAIL(Unaudited)
(Dollars in Millions)First Quarter
| Surface | ||||||||||||||||||||||||||||
| Rail | Intermodal | Transportation | ||||||||||||||||||||||||||
| Increase/ | ||||||||||||||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | (Decrease) | ||||||||||||||||||||||
Revenue | $ | 1,997 | $ | 1,779 | $ | 334 | $ | 329 | $ | 2,331 | $ | 2,108 | $ | 223 | ||||||||||||||
| Operating Expense: | ||||||||||||||||||||||||||||
| Labor and Fringe | 698 | 674 | 20 | 20 | 718 | 694 | 24 | |||||||||||||||||||||
| Materials, Supplies and Other | 419 | 418 | 44 | 54 | 463 | 472 | (9 | ) | ||||||||||||||||||||
| Depreciation | 201 | 193 | 10 | 10 | 211 | 203 | 8 | |||||||||||||||||||||
| Fuel | 253 | 179 | — | — | 253 | 179 | 74 | |||||||||||||||||||||
| Building and Equipment Rent | 93 | 101 | 31 | 34 | 124 | 135 | (11 | ) | ||||||||||||||||||||
| Inland Transportation | (111 | ) | (105 | ) | 167 | 159 | 56 | 54 | 2 | |||||||||||||||||||
| Conrail Rents, Fees and Services | 19 | 20 | — | — | 19 | 20 | (1 | ) | ||||||||||||||||||||
Total Expense | 1,572 | 1,480 | 272 | 277 | 1,844 | 1,757 | 87 | |||||||||||||||||||||
Surface Transportation Operating Income | $ | 425 | $ | 299 | $ | 62 | $ | 52 | $ | 487 | $ | 351 | $ | 136 | ||||||||||||||
Surface Transportation Operating Ratio | 78.7 | % | 83.2 | % | 81.4 | % | 84.2 | % | 79.1 | % | 83.3 | % | ||||||||||||||||
Second Quarters
| Rail | Intermodal | Surface Transportation | Increase/ | ||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | (Decrease) | |||||||||||||
Revenue | $ 2,065 | $ 1,836 | $ 356 | $ 330 | $ 2,421 | $ 2,166 | $ 255 | ||||||||||||
Operating Expense: | |||||||||||||||||||
Labor and Fringe | 695 | 687 | 20 | 19 | 715 | 706 | 9 | ||||||||||||
Materials, Supplies and Other | 414 | 394 | 54 | 47 | 468 | 441 | 27 | ||||||||||||
Depreciation | 206 | 193 | 10 | 10 | 216 | 203 | 13 | ||||||||||||
Fuel | 288 | 176 | - | - | 288 | 176 | 112 | ||||||||||||
Building and Equipment Rent | 99 | 104 | 33 | 33 | 132 | 137 | (5) | ||||||||||||
Inland Transportation | (116 | ) | (104 | ) | 178 | 166 | 62 | 62 | - | ||||||||||
Conrail Rents, Fees and Services | 21 | 19 | - | - | 21 | 19 | 2 | ||||||||||||
Gain on Insurance Recoveries | (124 | ) | - | (2 | ) | - | (126 | ) | - | (126) | |||||||||
Total Expense | 1,483 | 1,469 | 293 | 275 | 1,776 | 1,744 | 32 | ||||||||||||
Surface Transportation Operating Income | $ 582 | $ 367 | $ 63 | $ 55 | $ 645 | $ 422 | $ 223 | ||||||||||||
Surface Transportation Operating Ratio | 71.8 | % | 80.0 | % | 82.3 | % | 83.3 | % | 73.4 | % | 80.5% | ||||||||
SURFACE TRANSPORTATION VOLUME AND REVENUE
Volume (Thousands); Revenue (Dollars in Millions); Revenue Per Unit (Dollars)First Quarter
| Volume | Revenue | Revenue Per Unit | ||||||||||||||||||||||||||||||||||
| 2006 | 2005 | % Change | 2006 | 2005 | %Change | 2006 | 2005 | % Change | ||||||||||||||||||||||||||||
| Chemicals | 135 | 140 | (4 | )% | $ | 295 | $ | 275 | 7 | % | $ | 2,185 | $ | 1,964 | 11 | % | ||||||||||||||||||||
| Emerging Markets | 124 | 115 | 8 | 134 | 117 | 15 | 1,081 | 1,017 | 6 | |||||||||||||||||||||||||||
| Forest Products | 106 | 113 | (6 | ) | 191 | 176 | 9 | 1,802 | 1,558 | 16 | ||||||||||||||||||||||||||
| Agricultural Products | 96 | 92 | 4 | 157 | 137 | 15 | 1,635 | 1,489 | 10 | |||||||||||||||||||||||||||
| Metals | 94 | 93 | 1 | 164 | 138 | 19 | 1,745 | 1,484 | 18 | |||||||||||||||||||||||||||
| Phosphates and Fertilizers | 88 | 117 | (25 | ) | 90 | 90 | — | 1,023 | 769 | 33 | ||||||||||||||||||||||||||
| Food and Consumer | 64 | 63 | 2 | 118 | 105 | 12 | 1,844 | 1,667 | 11 | |||||||||||||||||||||||||||
Total Merchandise | 707 | 733 | (4 | ) | 1,149 | 1,038 | 11 | 1,625 | 1,416 | 15 | ||||||||||||||||||||||||||
| Coal | 456 | 437 | 4 | 552 | 482 | 15 | 1,211 | 1,103 | 10 | |||||||||||||||||||||||||||
| Coke and Iron Ore | 20 | 21 | (5 | ) | 27 | 24 | 13 | 1,350 | 1,143 | 18 | ||||||||||||||||||||||||||
Total Coal | 476 | 458 | 4 | 579 | 506 | 14 | 1,216 | 1,105 | 10 | |||||||||||||||||||||||||||
Automotive | 127 | 125 | 2 | 231 | 208 | 11 | 1,819 | 1,664 | 9 | |||||||||||||||||||||||||||
Other | — | — | — | 38 | 27 | 41 | — | — | — | |||||||||||||||||||||||||||
Total Rail | 1,310 | 1,316 | — | 1,997 | 1,779 | 12 | 1,524 | 1,352 | 13 | |||||||||||||||||||||||||||
| International | 302 | 316 | (4 | ) | 132 | 132 | — | 437 | 418 | 5 | ||||||||||||||||||||||||||
| Domestic | 214 | 212 | 1 | 186 | 173 | 8 | 869 | 816 | 6 | |||||||||||||||||||||||||||
| Other | — | — | — | 16 | 24 | (33 | ) | — | — | — | ||||||||||||||||||||||||||
Total Intermodal | 516 | 528 | (2 | ) | 334 | 329 | 2 | 647 | 623 | 4 | ||||||||||||||||||||||||||
Total Surface Transportation | 1,826 | 1,844 | (1 | )% | $ | 2,331 | $ | 2,108 | 11 | % | $ | 1,277 | $ | 1,143 | 12 | % | ||||||||||||||||||||
29
| Volume | Revenue | Revenue Per Unit | ||||||||||||||||||||
| 2006 | 2005 | % Change | 2006 | 2005 | % Change | 2006 | 2005 | % Change | ||||||||||||||
Chemicals | 134 | 135 | (1)% | $ 305 | $ 270 | 13% | $ 2,276 | $ 2,000 | 14% | |||||||||||||
Emerging Markets | 144 | 136 | 6 | 158 | 137 | 15 | 1,097 | 1,007 | 9 | |||||||||||||
Forest Products | 103 | 113 | (9) | 194 | 181 | 7 | 1,883 | 1,602 | 18 | |||||||||||||
Agricultural Products | 96 | 87 | 10 | 164 | 133 | 23 | 1,708 | 1,529 | 12 | |||||||||||||
Metals | 95 | 92 | 3 | 173 | 140 | 24 | 1,821 | 1,522 | 20 | |||||||||||||
Phosphates and Fertilizers | 94 | 117 | (20) | 93 | 91 | 2 | 989 | 778 | 27 | |||||||||||||
Food and Consumer | 63 | 63 | — | 120 | 109 | 10 | 1,905 | 1,730 | 10 | |||||||||||||
Total Merchandise | 729 | 743 | (2) | 1,207 | 1,061 | 14 | 1,656 | 1,428 | 16 | |||||||||||||
Coal | 446 | 438 | 2 | 562 | 519 | 8 | 1,260 | 1,185 | 6 | |||||||||||||
Coke and Iron Ore | 24 | 21 | 14 | 31 | 22 | 41 | 1,292 | 1,048 | 23 | |||||||||||||
Total Coal | 470 | 459 | 2 | 593 | 541 | 10 | 1,262 | 1,179 | 7 | |||||||||||||
Automotive | 124 | 124 | — | 223 | 211 | 6 | 1,798 | 1,702 | 6 | |||||||||||||
Other | — | — | — | 42 | 23 | 83 | — | — | — | |||||||||||||
Total Rail | 1,323 | 1,326 | — | 2,065 | 1,836 | 12 | 1,561 | 1,385 | 13 | |||||||||||||
International | 326 | 320 | 2 | 148 | 134 | 10 | 454 | 419 | 8 | |||||||||||||
Domestic | 221 | 223 | (1) | 198 | 190 | 4 | 896 | 852 | 5 | |||||||||||||
Other | — | — | — | 10 | 6 | 67 | — | — | — | |||||||||||||
Total Intermodal | 547 | 543 | 1 | 356 | 330 | 8 | 651 | 608 | 7 | |||||||||||||
Total Surface Transportation | 1,870 | 1,869 | — % | $ 2,421 | $ 2,166 | 12% | $ 1,295 | $ 1,159 | 12% | |||||||||||||
Prior periods have been reclassified to conform to the current presentation.
CSX CORPORATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Second Quarter Rail Results of Operations
Rail Operating Revenue
Second quarter Surface Transportation revenue represents the 17th consecutive quarter of year-over-year revenue growth. All four major markets experienced revenue gains as a result of continued traffic re-pricing and the fuel surcharge program.
Merchandise
Chemicals – Volume largely returned to pre-hurricane levels butRevenue and revenue per unit improved by capitalizing on a continued strong pricing environment. While shipments of plastics increased, overall volume was still below the prior year comparable quarter asdown slightly because high raw material costs continuecontinued to be a concern for domestic producers.
Emerging Markets – StrongContinued strength in the building and highway construction markets in the southeast propelled demand for aggregate products, such as rock, salt, and sand and movementcement. Shipments of municipal waste propelled volume increases partially offset by lower volumesand construction and demolition debris from the metropolitan areas in cement duethe northeast also continued to production interruptions.
Forest Products – Volume declined due to weakness in the printing market as well as production downtimes at several brown paper mills. Substitution effects from newsprint to electronic media continuescontinued to reduce the demand for printed paper. These declines were partially offsetA favorable pricing environment improved revenue per unit in all segments, which was led by strength in the lumber, market as warm weather helped increase housing starts despite recent signs of slowing housing activities.
Agricultural Products – Both volumesIncreased demand for ethanol as a fuel additive continued to be a key reason for strong volume growth. In addition, strong export demand for grain and revenues improvedincreased shipments of beans due to increased movements of soybeans. In addition,lower producer prices helped volume of ethanol moving into the Northeast increased as there was higher demand for this fuel additive.
Metals – Domestic steel demand continued to drive strong steelhigh levels of production throughout the quarter. Slightand volume gains, strong pricinggains. Pricing actions also contributed to a record revenue quarter and fuel surcharge coverage increases delivered 19% revenue growth.
PhosphatePhosphates and FertilizerFertilizers – Short haul,Short-haul export phosphate volume, which has lower revenue per car, phosphate volumeunit, decreased significantly due to temporaryas increased international production caused plant shutdowns resulting from lower international demand.shutdowns. The loss of this short haulshort-haul traffic and an increase in longer haullonger-haul domestic phosphate volume, combined fortogether had a significant favorable impact on revenue per unit and flat overall revenue.
Food and Consumer – Volume in this segment (which includes the transportation of refrigerated products, canned goods, building products and transportation equipment) increased due to strong growth of shipments of canned goods, rice, beans, beer and wine and strengthwas flat. Growth in deliveries of newly finished customercustomer-owned freight cars.
30shipments that are more profitable and are moved longer distances favorably affected revenue per unit.
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Coal
Revenue and volume were up on continued strong utility demand. Utility inventory levels were estimated to be at target levels at the end of the second quarter. Increased fuel surcharge coverage and a favorable pricing environment resulted in revenue-per-unit increases. Also, the second quarter of 2005 included an additional $17 million of revenue from a rate case settlement.
Automotive–
Volume was flat due to a slight reduction in North American light vehicle production was favorable. Market share continuesproduction. Consistent with the overall automotive market, CSX’s volumes continued to shift from the Big 3 to the new domestic manufacturers (foreignforeign brands produced domestically). Automotive revenuedomestically. Revenue per unit increasedwas favorable due to price escalationincreases and fuel surcharge.
Rail Operating Expense
Labor and Fringeexpenses increased due to higher staffing levels as well as the impacteffects of increased inflation. Other labor and fringe expense increases were more thaninflation partially offset by improved productivity in train operations, as overtime and other crew expenses were reduced with the improved operational fluidity.
Materials, Supplies and Otherexpenses increased primarily due to inflation and a prior year supplier reimbursement that was not repeated. These increases were flat as material and other inflation was largelypartially offset by productivity gains (for instance,from improved operations, such as railroad measurements improvebetter usage of locomotives from other railroads are used less and therefore drive down expense).
Depreciationis higher expense increased due to an increase in theincreasing asset base.
Fuelexpense increased due tofrom higher fuel prices and less fuel hedge benefit versus the first quarter of last year.
Building and Equipment Rentdecreased due to a reduction in railcar lease expense. This was a direct result of the improvement in operational fluidity, which drove improvements in shipment cycle-time and reduced the number of cars-on-line.
31
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Second Quarter Intermodal Results of Operations
Intermodal Operating Revenue
International – AlthoughOverall volume improved withincreased due to import activity from several key international customers, overall volume decreased predominantly due to the merger of two key accounts andpartially offset by continued yield management initiatives. Continued strength in pricing is partially offsetting the loss of higher revenueRevenue per unit traffic in long-haul markets.
Domestic – Volume declined slightly from fewer shipments from the west coast that are transported by other rail carriers, partially offset by growth in last year’s first quarter thatthe parcel and truckload markets. Additionally, the pricing environment continued to remain favorable.
Intermodal Operating Expense
Intermodal operating expense increased primarily due to higher fuel expense charged by CSXT included in inland transportation, which represents purchased transportation services, as well as the impact of increased inflation.
CSX CORPORATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Six Months Consolidated Results of Operations
The financial statements presented are for the six months of 2006 and 2005. Except as otherwise specified, references to years indicate the company’s fiscal six months as noted previously. (See Note 1, Significant Accounting Policies.)
| CONSOLIDATED | ||||||||
| Six Months | Increase/ | |||||||
| (Dollars in Millions) | 2006 | 2005 | (Decrease) | |||||
Operating Revenue | $ 4,752 | $ 4,274 | $ 478 | |||||
Operating Expense: | ||||||||
Labor and Fringe | 1,438 | 1,403 | 35 | |||||
Materials, Supplies and Other | 919 | 907 | 12 | |||||
Depreciation | 427 | 410 | 17 | |||||
Fuel | 541 | 355 | 186 | |||||
Building and Equipment Rent | 253 | 259 | (6 | ) | ||||
Inland Transportation | 118 | 116 | 2 | |||||
Conrail Rents, Fees & Services | 40 | 39 | 1 | |||||
Gain on Insurance Recoveries | (126 | ) | - | (126 | ) | |||
Total Operating Expense | 3,610 | 3,489 | 121 | |||||
Operating Income | $ 1,142 | $ 785 | $ 357 | |||||
Prior periods have been reclassified to conform to the current presentation.
Consolidated Operating Revenue
Revenue increases were not repeateddriven by the company’s continued pricing efforts, the fuel surcharge program and traffic mix.
Consolidated Operating Income
Improvement in consolidated operating income was driven by increased operating revenue and the gain on insurance recoveries, partially offset by higher fuel prices and lower fuel hedge benefit.
Interest Expense
Interest expense decreased $28 million compared to the prior year comparable period due to lower outstanding debt balances resulting from the repurchase of $1.0 billion of the company’s publicly-traded notes in June 2005.
CSX CORPORATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income Tax Expense
Income tax expense for the six months of 2006 increased $241 million compared to the prior year period. The principal elements of this quarterincrease are:
| (a) | income tax effect of increased pretax earnings; |
| (b) | income tax benefit principally related to the resolution of certain tax matters during the second quarter of 2006; and |
| (c) | income tax benefits from state tax legislation changes enacted in two jurisdictions during the first half of 2005. |
Net Earnings
Consolidated net earnings were lower by $109 million for the six months of 2006 compared to sales tax and other items.
| (a) | 2006 higher Surface Transportation earnings and the gain on insurance recoveries resulting from Hurricane Katrina, which were more than offset by |
| (b) | the net favorable result of $425 million of income from the company’s discontinued operations and debt repurchase expense in 2005. |
CSX CORPORATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SURFACE TRANSPORTATION DETAIL (Unaudited)
(Dollars in Millions)
Six Months
| Rail | Intermodal | Surface Transportation | Increase/ | ||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | (Decrease) | |||||||||||||
Revenue | $ 4,062 | $ 3,615 | $ 690 | $ 659 | $ 4,752 | $ 4,274 | $ 478 | ||||||||||||
Operating Expense: | |||||||||||||||||||
Labor and Fringe | 1,393 | 1,361 | 40 | 39 | 1,433 | 1,400 | 33 | ||||||||||||
Materials, Supplies and Other | 833 | 812 | 98 | 101 | 931 | 913 | 18 | ||||||||||||
Depreciation | 407 | 386 | 20 | 20 | 427 | 406 | 21 | ||||||||||||
Fuel | 541 | 355 | - | - | 541 | 355 | 186 | ||||||||||||
Building and Equipment Rent | 192 | 205 | 64 | 67 | 256 | 272 | (16) | ||||||||||||
Inland Transportation | (227 | ) | (209 | ) | 345 | 325 | 118 | 116 | 2 | ||||||||||
Conrail Rents, Fees and Services | 40 | 39 | - | - | 40 | 39 | 1 | ||||||||||||
Gain on Insurance Recoveries | (124 | ) | - | (2 | ) | - | (126 | ) | - | (126) | |||||||||
Total Expense | 3,055 | 2,949 | 565 | 552 | 3,620 | 3,501 | 119 | ||||||||||||
Surface Transportation Operating Income | $ 1,007 | $ 666 | $ 125 | $ 107 | $ 1,132 | $ 773 | $ 359 | ||||||||||||
Surface Transportation Operating Ratio | 75.2 | % | 81.6 | % | 81.9 | % | 83.8 | % | 76.2 | % | 81.9% | ||||||||
SURFACE TRANSPORTATION VOLUME AND REVENUE
Volume (Thousands); Revenue (Dollars in Millions); Revenue Per Unit (Dollars)
Six Months
| Volume | Revenue | Revenue Per Unit | ||||||||||||||||||||
| 2006 | 2005 | % Change | 2006 | 2005 | % Change | 2006 | 2005 | % Change | ||||||||||||||
Chemicals | 269 | 275 | (2)% | $ 600 | $ 546 | 10% | $ 2,230 | $ 1,985 | 12% | |||||||||||||
Emerging Markets | 268 | 251 | 7 | 292 | 254 | 15 | 1,090 | 1,012 | 8 | |||||||||||||
Forest Products | 209 | 226 | (8) | 385 | 357 | 8 | 1,842 | 1,580 | 17 | |||||||||||||
Agricultural Products | 192 | 179 | 7 | 321 | 270 | 19 | 1,672 | 1,508 | 11 | |||||||||||||
Metals | 189 | 185 | 2 | 337 | 278 | 21 | 1,783 | 1,503 | 19 | |||||||||||||
Phosphates and Fertilizers | 182 | 234 | (22) | 183 | 181 | 1 | 1,005 | 774 | 30 | |||||||||||||
Food and Consumer | 127 | 126 | 1 | 238 | 213 | 12 | 1,874 | 1,690 | 11 | |||||||||||||
Total Merchandise | 1,436 | 1,476 | (3) | 2,356 | 2,099 | 12 | 1,641 | 1,422 | 15 | |||||||||||||
Coal | 902 | 875 | 3 | 1,114 | 1,001 | 11 | 1,235 | 1,144 | 8 | |||||||||||||
Coke and Iron Ore | 44 | 42 | 5 | 58 | 46 | 26 | 1,318 | 1,095 | 20 | |||||||||||||
Total Coal | 946 | 917 | 3 | 1,172 | 1,047 | 12 | 1,239 | 1,142 | 8 | |||||||||||||
Automotive | 251 | 249 | 1 | 454 | 419 | 8 | 1,809 | 1,683 | 7 | |||||||||||||
Other | - | - | - | 80 | 50 | 60 | - | - | - | |||||||||||||
Total Rail | 2,633 | 2,642 | - | 4,062 | 3,615 | 12 | 1,543 | 1,368 | 13 | |||||||||||||
International | 628 | 636 | (1) | 280 | 266 | 5 | 446 | 418 | 7 | |||||||||||||
Domestic | 435 | 435 | - | 384 | 363 | 6 | 883 | 834 | 6 | |||||||||||||
Other | - | - | - | 26 | 30 | (13) | - | - | - | |||||||||||||
Total Intermodal | 1,063 | 1,071 | (1) | 690 | 659 | 5 | 649 | 615 | 6 | |||||||||||||
Total Surface Transportation | 3,696 | 3,713 | -% | $ 4,752 | $ 4,274 | 11% | $ 286 | $ 1,151 | 12% | |||||||||||||
Prior periods have been reclassified to conform to the current presentation.
CSX CORPORATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Material Changes in Consolidated Balance Sheets
The following is a summary ofare material changes in the Consolidated Balance Sheets and sources of liquidity and capital. This summarycapital, which provides an update to the discussion included in CSX’s most recent Annual Report on Form 10-K.
Cash, Cash Equivalents and Short-term Investments increased $111$80 million, or 18%13%, from December 2005 as a result of higher cash provided by operations offset by increased property additions.
Labor and Fringe Benefits Payable decreased $132$108 million, or 23%19%, from December 2005 primarily due to management incentive compensation payments in the first quarter of 2006.
Significant Cash Flow Statement Items
Operating and Other Taxes Payableinvesting activities for the six months of 2006 include insurance proceeds of $92 million and $115 million, respectively, representing cash receipts from insurers related to Hurricane Katrina. Cash flows from operations represent reimbursements for business interruption related expenses, such as incremental expenses for debris removal and lost profits. Cash flows from investing activities include reimbursements for property damage.
Financing activities for the six months of 2006 include cash inflows of $224 million from stock option exercises, mostly offset by cash used to repurchase shares of CSX’s common stock on the open market of $149 million. See Part II, Item 2 of this Quarterly Report on Form 10-Q. CSX’s Board of Directors has approved new authority for the purchase of shares of its common stock from time to time up to $500 million which the company intends to complete over the next 12 months beginning in the third quarter of 2006.
CSX management believes operating cash flows and cash on hand will be sufficient to fund announced dividend increases, share repurchases and increased $135 million, or 132%, due to increases in federal tax liabilities associated with higher Consolidated Operating Income.
Working Capital
CSX’s working capital deficit was $865 million at March 31,June 30, 2006, was a deficit of $507 million, compared to a deficit of $607 million at December 30, 2005. This change isincrease was primarily driven by increases in cash balances.higher current debt obligations reclassified from long-term debt as they are scheduled to mature within the next 12 months, partially offset by management incentive compensation payments. A working capital deficit is not unusual for the Company (orcompany or other companies in the industry)industry and does not indicate a lack of liquidity. The Companycompany continues to maintain adequate current assets to satisfy current liabilities and maturing obligations when they come due, and has sufficient financial capacity, including the Company’sfrom CSX’s primary revolving credit agreements,agreement, to manage its day-to-day cash requirements and anyanticipated obligations arising from legal, tax and other regulatory rulings.settlements. (See Note 4,7, Debt and Credit Agreements.)
32
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Credit Ratings
For information relating to the company’s credit ratings, see Note 7, Debt and Credit Agreements, under Part I, Item 1 of capacity under an effective shelf registration that may be used, subjectthis Quarterly Report on Form 10-Q.
Credit Risk
The company grants credit to market conditions and board authorization, to issue debt or equity securities at CSX’s discretion. CSX presently intends to use the proceeds from the sale of any securities issued under its shelf registration statement to finance cash requirements, including refinancing existing debt as it matures. While CSX seeks to give itself flexibility with respect to meeting such needs, 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.
OTHER MATTERS
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 ofof: (i) certain assets and liabilities, the disclosure ofliabilities; (ii) contingent assets and liabilities at the date of the financial statementsstatements; and the reported amount of(iii) certain revenues and expenses during the reporting period. Actual results may differ from those estimates. Consistent with the prior year, significant estimates using management judgment are made for the following areas:
Casualty, Environmental and Legal Reserves
Pension and Postretirement Medical Plan Accounting
Depreciation Policies for Assets Under the Group-Life Method
Income Taxes
These estimates and assumptions are discussed with the Audit Committee of the Board of Directors on a regular basis.
33
Certain statements in this report and in other materials filed with the Securities and Exchange Commission (“SEC”), as well as information included in oral statements or other written statements made by the Company,company, are forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements include, among others, statements regarding:
Expectations as to results of operations and operational improvements;
Expectations as to the effect of claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements on the company’s financial condition;
Management’s plans, goals, strategies and objectives for future operations and other similar expressions concerning matters that are not historical facts, and management’s expectations as to future performance and operations and the time by which objectives will be achieved; and
Future economic, industry or market conditions or performance.
CSX CORPORATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “project,” and similar expressions. The Companycompany 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 times that, or by which, such performance or results will be achieved.
Forward-looking statements are subject to a number of risks and uncertainties and actual performance or results could differ materially from those anticipated by these forward-looking statements. The Companycompany undertakes no obligation to update or revise any forward-looking statement. If the Companycompany does update any forward-looking statement, no inference should be drawn that the Companycompany will make additional updates with respect to that statement or any other forward-looking statements. The following important factors, in addition to those discussed elsewhere, may cause actual results to differ materially from those contemplated by these forward-looking statements:
The company’s success in implementing its operational objectives and improving Surface Transportation operating efficiency;
Changes in operating conditions and costs or commodity concentrations; Material changes in domestic or international economic or business conditions, including those affecting the rail industry such as access to capital markets, ability to revise debt arrangements as contemplated, customer demand, customer acceptance of price increases, effects of adverse economic |
34
Labor costs and labor difficulties, including stoppages affecting either the company’s operations or the customers’ ability to deliver goods to the company for shipment;
The inherent risks associated with safety and security, including the availability and cost of insurance, the availability and vulnerability of information technology, adverse economic or operational effects from actual or threatened war or terrorist activities and any governmental response;
Changes in fuel prices, surcharges for fuel and the availability of fuel;
Legislative, regulatory or legal developments involving transportation, including rail or intermodal transportation, the environment, hazardous materials or taxation, including the outcome of tax claims and litigation, the potential enactment of initiatives to re-regulate the rail industry and the ultimate outcome of shipper and rate claims subject to adjudication;
Competition from other modes of freight transportation, such as trucking and competition and consolidation within the transportation industry generally;
Natural events such as severe weather conditions, including floods, fire, hurricanes and earthquakes, a pandemic affecting the health of the company’s employees, its shippers or the consumers of goods such as may result from avian flu, or other unforeseen disruptions of the company’s operations, systems, property or equipment; and
CSX CORPORATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The outcome of litigation and claims, including those related to environmental contamination, personal injuries and occupational illnesses.
Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified elsewhere in this report and in CSX’s other SEC reports, accessible on the SEC’s website atwww.sec.gov and the Company’scompany’s website atwww.csx.comwww.csx.com..
35
There have been no material changes in market risk from the information provided under “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of CSX’s Annual Report on Form 10-K for the fiscal year ended December 30, 2005.
As of March 31,June 30, 2006, under the supervision and with the participation of CSX’s Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), management has evaluated the effectiveness of the design and operation of the Company’scompany’s disclosure controls and procedures. Based uponon that evaluation, the CEO and CFO concluded that, as of June 30, 2006, the Company’scompany’s disclosure controls and procedures were effective asat the reasonable assurance level in timely alerting them to material information required to be included in CSX’s periodic SEC reports. Management’s assessment of March 31, 2006. the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met.
There were no changes in the Company’scompany’s internal controls over financial reporting during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’scompany’s internal control over financial reporting.
For information relating to the Company’scompany’s settlements and other legal proceedings, see Note 12,6, Commitments and Contingencies.
| ITEM 1A. | RISK FACTORS |
For information regarding factors that could affect the Company’scompany’s results of operations, financial condition and liquidity, see the risk factors discussion provideddiscussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of CSX’s Annual Report on Form 10-K for the fiscal year ended December 30, 2005. See also “Forward-Looking Statements”Statements,” included in Item 2 of this Quarterly Report on Form 10-Q.
36 There have been no material changes from the risk factors previously disclosed in CSX’s most recent Annual Report on Form 10-K.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| (a) | None. |
| (b) | Not applicable. |
| (c) | As required by SEC Regulation S-K for the quarter ended June 30, 2006, the following table summarizes: |
Common shares withheld by CSX on behalf of current and retired employees to settle the employees’ minimum statutory tax obligation on the distribution of shares that were formerly deferred or any restricted stock that has vested;
Common shares purchased on the open market to fund the estimated company contribution required to be paid in CSX common stock under the Capital Builder Plan which covers certain union employees; and
Common shares purchased on the open market pursuant to share repurchase authority.
Issuer Purchases of Equity Securities | ||||||||||
| Fiscal Period | 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(a) | ||||||
Beginning Balance | $ | 150,000,000 | ||||||||
April | ||||||||||
(April 1, 2006 - April 28, 2006) | 501,636 | $ | 67.84 | 500,000 | 115,278,161 | |||||
May | ||||||||||
(April 29, 2006 - May 26, 2006) | 1,622,823 | $ | 70.98 | 1,621,000 | 218,611 | |||||
June | ||||||||||
(May 27, 2006 - June 30, 2006) | 226 | $ | 61.46 | - | 218,611 | |||||
Total/Ending Balance | 2,124,685 | 2,121,000 | $ | 218,611 | ||||||
(a) As required by SEC Regulation S-K for the quarter ended March 31,disclosed in its most recent Annual Report on Form 10-K filed on February 24, 2006, its Board of Directors had authorized CSX to purchase shares of its common stock up to approximately $150 million in any fiscal year. On July 18, 2006, the following table summarizes:
| (c) Total | (d) Maximum | |||||||||||||||
| Number of | Number of | |||||||||||||||
| Shares | Shares that | |||||||||||||||
| (b) | Purchased as | May Yet Be | ||||||||||||||
| (a) Total | Average | Part of Publicly | Purchased | |||||||||||||
| Number of | Price | Announced | Under the | |||||||||||||
| Shares | Paid per | Plans or | Plan or | |||||||||||||
| Period | Purchased | Share | Programs | Programs* | ||||||||||||
| January | ||||||||||||||||
| (December 31, 2005 - January 27, 2006) | 397 | $ | 53.28 | — | — | |||||||||||
| February | ||||||||||||||||
| (January 28, 2006 - February 24, 2006) | 229,381 | $ | 52.16 | — | — | |||||||||||
| March | ||||||||||||||||
| (February 25, 2006 - March 31, 2006) | 12,223 | $ | 54.51 | — | — | |||||||||||
| Total | 242,001 | $ | 52.28 | — | — | |||||||||||
37
None.
| (a) | Annual Shareholders’ meeting held May 3, 2006 |
| (b) | Not applicable |
| (c) | There were 220,582,789 shares of CSX common stock outstanding as of May 3, 2006, the record date for the 2006 annual meeting of shareholders. A total of 190,376,527 shares were voted. All directors serve one-year terms. All of the nominees for directors of CSX were elected with the following vote: |
| Nominee | Votes For | Votes Withheld | ||||
Elizabeth E. Bailey | 185,543,145 | 4,833,382 | ||||
John B. Breaux | 187,679,413 | 2,697,114 | ||||
Edward J. Kelly, III | 187,369,200 | 3,007,327 | ||||
Robert D. Kunisch | 185,111,575 | 5,264,952 | ||||
Southwood J. Morcott | 185,575,878 | 4,800,649 | ||||
David M. Ratcliffe | 186,329,730 | 4,046,797 | ||||
William C. Richardson | 180,140,588 | 10,235,939 | ||||
Frank S. Royal | 183,409,185 | 6,967,342 | ||||
Donald J. Shepard | 187,095,136 | 3,281,391 | ||||
Michael J. Ward | 185,424,572 | 4,951,955 | ||||
The appointment of Ernst & Young LLP as independent auditors to audit and report on CSX’s consolidated financial statements for the year 2006 was ratified by the shareholders with the following vote:
| ||||||
| Votes For | Votes | Abstentions | Broker Non-Votes | |||
187,640,521 | 1,381,654 | 1,354,352 | - | |||
CSX’s proposal regarding re-approval of the CSX Omnibus Incentive Plan was approved with the following vote: | ||||||
| Votes For | Votes Against | Abstentions | Broker Non-Votes | |||
177,818,117 | 10,942,424 | 1,615,986 | - | |||
CSX CORPORATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS, CONTINUED
CSX’s proposal regarding elimination of supermajority voting requirements governing mergers, share exchanges, certain sales or dispositions of assets, and dissolution was approved with the following vote: | ||||||
| Votes For | Votes Against | Abstentions | Broker Non-Votes | |||
183,307,226 | 5,022,040 | 2,047,261 | — | |||
CSX’s proposal regarding elimination of supermajority voting requirements governing affiliated transactions was approved with the following vote: | ||||||
| Votes For | Votes Against | Abstentions | Broker Non-Votes | |||
183,210,176 | 5,126,960 | 2,039,391 | — | |||
The shareholder proposal regarding separation of the roles of Chairman and Chief Executive Officer was rejected with the following vote: | ||||||
| Votes For | Votes Against | Abstentions | Broker Non-Votes | |||
28,572,629 | 137,252,802 | 1,991,115 | 22,559,981 | |||
(d) None.
None.
Exhibits
| 31.1 | * | ||
Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| 31.2 | * | Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | * | Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | * | Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CSX CORPORATION | ||||
(Registrant) | ||||
By: | ||||
/s/ CAROLYN T. SIZEMORE | ||||
Carolyn T. Sizemore | ||||
Vice President and Controller | ||||
(Principal Accounting Officer) | ||||
Dated: April 25,July 19, 2006
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